US STRATEGY – Office Sharks

Gareth: If you’re so clever, what am I thinking now?

Tim: You’re thinking "how can I kill a tiger armed only with a biro?"

Gareth: No.

Tim: You’re thinking "if I crash land in a jungle will I be able to eat my own shoes?"

Gareth: No. And you can’t

Tim: What are you thinking Gareth?

Gareth: I was just wondering whether will there ever be a boy born who can swim faster than a shark.


-Excerpt from the British version of The Office


In the Early Look, Keith led with a quote from the well known British comedy Benny Hill.  Given that it is British Comedy day at Research Edge, we’ve led with a quote from The Office.  Similar to Gareth we have some questions. For example, is there a market that can continue to swim faster than its declining currency?


The S&P 500 has been up for six days in a row, rising 2.2% on Monday.  Yesterday’s rally was driven by the heightened appetite for RISK and the REFLATION trade following the G20 meeting over the weekend.  Despite its importance as the world currency reserve the G20 leaders refrained from addressing the weakness in the U.S. dollar.  Without any active support from the world’s leaders, the dollar index closed down nearly 1%, to its lowest level since August 2008.  As we know, that decline in the U.S. dollar foreshadowed a dramatic decline in the stock market in the Fall of 2008.  While we certainly do not adhere to single factor models, this decline in the U.S. dollar is a major red flashing light currently for U.S. equities.  As a result, we have raised cash in our asset allocation model to the highest level since July 1, 2009.


The heightened momentum behind the REFLATION trade helped many of the usual suspects outperform yesterday.  The three best performing sectors were the Industrials (XLI), Financials (XLF) and Materials (XLB).  The Financials were the best performing sector, up 3.6% on the day.  There was no one catalyst for the strength other than U.S. dollar weakness.


The Materials rose 3.3% yesterday, and notable gainers included the metals and mining stocks and paper and forest products.  In the industrials sector, E&Cs and machinery stocks did the best.  


The worst performing sectors were Utilities (XLU), Healthcare (XLV) and Consumer Staples (XLP).  Managed care stocks finished higher for a sixth straight session today with the HMO leading the way.  The performance came despite the fact that the House approved its version of healthcare reform legislation this weekend.


Homebuilders are poised for a positive day today as Beazer Homes reported a fourth-quarter profit.  The Company reported “some moderation” in weak market trends.  New home orders rose 2.4% from a year ago, and cancellation rate improved from 34.7% to 46.3%.  In the pre-market the stock was up 7%.


Today, the set up for the S&P 500 is: TRADE (1,067) and TREND is positive (1,032).   The Research Edge quantitative models have 9 of 9 sectors in the S&P 500 positive on TREND and 8 of 9 sectors are positive from the TRADE duration.  Financials are the only sector not positive on both durations. 


The Research Edge Quant models have 0.5% upside and 2.5% downside in the S&P 500.  At the time of writing the major market futures are poised to open up small to the downside. 


The Research Edge MACRO Team.


US STRATEGY – Office Sharks - SP11 10


US STRATEGY – Office Sharks - CHART11 10SV




November 10, 2009


We’ve seen a bifurcation is sentiment within retail. Given the current set-up, we’ve got to particularly weigh earnings catalysts vs. incremental changes in expectations. It matters now more than ever.




In our virtual portfolio we went to 69% cash this morning, and took US and Int’l equities down to only 3% each as a percent of the portfolio. As it relates to retail, two things are front and center for me – 1) catalysts and 2) sentiment. Let’s take a look at the latter.


Our analysis below triangulates short interest as a percent of float (Y Axis) with our Sell-Side Sentiment factor rating. We’ve definitely seen movement here in the past few weeks.


Call Outs:

  1. This market hates, hates, hates, LIZ, UA, SKS, CAB, ETH, GAP and SHLD. These are names where both the buy side and sell side are overwhelmingly negative.  Others to keep an eye on: DDS, BONT (flashed green on stock screen frequently), COLM and OSTK. HIBB is worth noting as well – though sell side is positive, the buy-side is polar opposite.
  2. On the flip side, there’s no shortage of names where there’s a buy/sell-side love fest love fest. Those include GIL, COH, AMZN, GCO, DLTR, KSS, TGT, WMT, CVS, TJX, KR, and VFC.  If you’re long these names and can’t find a positive earnings catalyst – you might be in the wrong place.





Some Notable Call Outs


  • Hidden in Crocs’ recently filed 10-Q was the disclosure of a lawsuit filed against the company by Porsche. The lawsuit essentially alleges misuse of the “Cayman” name, which in this case is used for both the iconic Crocs clog and the mid-level sports car. While I’m not a lawyer or legal expert, it is hard to believe Porsche really thinks consumers are confusing the luxury car with the rubber shoe. After all, wasn’t Cayman a tropical place even before either of these products existed?


  • According to the eholiday study, four out of five e-commerce sites will offer free shipping this holiday season, however many offers will have “strings attached”. In other words, minimum order size, quantity of items purchased, or date restrictions will likely determine “free” eligibility. Approximately 57% of sites are expected to offer straightforward free shipping with no stipulations.


  • In one of the more head-scratching licensing deals we’ve seen in a while, Jamba Juice (yes, think smoothies) struck a deal to develop a line of branded apparel. The t-shirts, sweatshirts, headwear, and totebag are slated to be sold in mass, specialty, and upscale retailers. There’s nothing like developing an apparel line in an effort to sell more smoothies. It would be one thing if the actual Jamba stores were selling some logo apparel, but targeting other retailers seems like a lofty goal.





Firms Loaded With Cash in Position to Diversify - As weaker fashion companies scramble to keep goods flowing and the bankers at bay, the powerhouses that managed to sock away money during the credit crunch might just start putting their extra millions to work. Options include new lines of business, IT makeovers, store refurbishments and even acquisitions. You may still see some companies starting to wade back out there and start to spend some money. Still, the world hasn’t stopped. Retail stocks hit a 52-week high on Monday. The stockpiles make these firms, and a few others, doubly dangerous. Not only do they have the underlying businesses that produced that cash, but the funds also now give them the flexibility to adapt and take advantage of the shifting retail and fashion landscape. <>


Talbots Said to Seek to Refinance Debt, Hire Perella as Adviser - Talbots Inc., the U.S. women’s clothing chain, hired an adviser to help it refinance about $225 million in debt, according to two people familiar with the situation. Talbots hired Perella Weinberg Partners LP, according to the people, who declined to be identified because the decision hasn’t been made public. The chain, based in Hingham, Massachusetts, has posted losses for the past five quarters. Chief Executive Officer Trudy Sullivan has made three rounds of job cuts since 2008, with the company saying in June it would eliminate 20 percent of its corporate positions. Talbots posted a loss of $24.5 million in the quarter ended Aug. 1. <>


Apparel Importers Pressure Suppliers as Sales Lag - Apparel importers are looking to their suppliers to provide greater value and efficiency as they confront a challenging holiday season and an anticipated slow rebound in consumer spending. During last week’s annual Textile & Apparel Importers Trade & Transportation Conference in New York, speakers at all levels of the supply chain indicated that most of them were treading water as they awaited a significant change in the consumer psyche. At the same time, brands, retailers, suppliers and logistics providers were aware that the depressed business environment could drag them under before that moment arrives. “This recession has taught us one thing — consumers are consuming less and saving more,” said Janet Fox, director of sourcing at J.C. Penney Co. Inc. and chairman of the U.S. Association of Importers of Textiles & Apparel. <>


China Targeted in Antidumping Measures - Three emerging economies — Argentina, Brazil and Turkey — launched the largest number of antidumping investigations on textile imports in the 12 months through June, with shipments originating in China the most heavily targeted, a new World Trade Organization report said. Out of 28 new cases, Argentina and Brazil initiated seven antidumping actions each, Turkey had five, and India and Indonesia each had three. Argentina launched investigations on imports of Chinese fibers and yarns, denim and plain weave fabric, and separate cases against imports of fibers and yarns from India, Indonesia and Taiwan, and shipments of plain weave fabric from Brazil. Under global trade norms, dumping occurs when an exporter sells goods abroad at a lower price than they trade for in the home country or at below cost. <>


IT Holding Restructuring Under Review - The special commissioners for IT Holding SpA, which has been in government-backed bankruptcy protection since February, submitted their restructuring plan for approval on Monday to Italy’s minister of economic development. A company spokesman said an abstract of the report, which is expected to recommend a breakup of the group, would be made public in the next few days, but was unable to confirm when a decision could be expected from Minister Claudio Scajola. Commissioners Andrea Ciccoli, Stanislao Chimenti and Roberto Spada invited letters of intent at the end of September to identify possible buyers for some or all of IT Holding’s assets. Ciccoli told WWD in October the plan may or may not include recommendations to break up the fashion group, although experts believe a sale is likely. <>


Wilkes Bashford Files Voluntary Chapter 11 - Wilkes Bashford, the San Francisco-based men's wear institution, has filed a voluntary Chapter 11 petition. As part of the agreement, Bashford has reached an agreement with the Mitchell family of Westport, Conn., to acquire the assets of the business. The deal is subject to an auction process and approval of the bankruptcy court. In a statement late Monday, Wilkes Bashford, chairman, said, "During this period, it will be business as usual. Customers will continue to be served by our world class associates and we will continue to provide our customers with their favorite fashions." <>


US: CPSC to vote on product safety recommendations -The US Consumer Product Safety Commission (CPSC) will vote on recommendations proposed by Intertek and the American Apparel and Footwear Association (AAFA) regarding testing of children's goods including apparel. The CPSC's approval of their guidance document on Consumer Product Safety Improvement Act testing and certification procedures would codify Intertek and AAFA's recommendations as formal agency policy. The industry foresees that successful adoption of the policies would "save manufacturers millions while improving reliability of product testing". <>


Hong Kong: Q3 domestics exports fall sharply - Hong Kong recorded sharp falls in the value of its domestics exports in Q3, according to the Census and Statistics Department of the Hong Kong Special Administrative Region, with the apparel industry suffering most. The value of garment exports falling 84.7% year on year to 1.1 billion HK dollars (US$141 million). The basic metals industry trailed with a fall of 49.1%, followed by the paper and paper products, and printing and reproduction of recorded media industry. The chemicals and chemical products industry was also one of the biggest losers. The computer, electronic and optical products industry saw a fall of 8.8% in the value of domestics exports. The above five industries together accounted for 60% of Hong Kong's total domestics exports, or the exports of goods produced or manufactured in Hong Kong. <>


Forever 21 Founders to Give Deposition - The founders of Forever 21 will be deposed in a copyright lawsuit filed by Express, a Los Angeles judge ruled. Express charged in a lawsuit filed in California’s Central District Court in June that Los Angeles-based Forever 21 copied four of its copyrighted plaid patterns for men’s shorts that were introduced in its stores in December 2007, and also alleged trade dress infringement for a zippered jacket the retailer introduced last December. A trial is set to begin in September. <>


Retail Stocks Reach 52-Week High Monday - Retail stocks hit a new 52-week high Monday, rising 2 percent as global markets rallied after the finance ministers and central bankers of the G-20 said they would continue to support the economy until the recovery finds its footing. The S&P Retail Index retook the 400 mark, advancing 7.74 points to close at 403.08, near its high for the day. <>


'Middle-class shoplifters' in record crime wave - Levels of shoplifting hit a record high over the past year as the ‘middle-class shoplifter’ turned to crime to fund a high standard of living in the recession.

Shop theft in the UK soared nearly 20% during the past 12 months, costing retailers a record £4.88bn – a £750m increase on last year. According to the 2009 Retail Global Theft Barometer, the UK tops the retail crime league table in Europe. Clothing and accessories experienced one of the steepest increases, rising 8.8%, with branded and designer clothing, football shirts, lingerie and leather goods proving particularly popular among shoplifters. <>


Goodman Joining Sears as Chief of Apparel and Home - John Goodman, the well-traveled retailer who was most recently chief executive officer of Charlotte Russe Holding Corp. in the months leading up to its acquisition by Advent International Corp., has rejoined Sears Holdings Corp. as executive vice president of apparel and home, a new post. He will also serve as interim president of Kmart Apparel until a permanent officer is named to that post. Sears said Goodman will be based in San Francisco and establish an office there for the company along the lines of the design office set up in Manhattan three years ago. He reports to Bruce Johnson, interim president and ceo of Sears. <>


Google pays $750 million for a mobile ad technology company - Google Inc. has agreed to acquire AdMob, a mobile display ad technology provider and ad marketplace, for $750 million in stock. This acquisition will enhance Google’s existing expertise and technology in mobile advertising, while also giving advertisers and publishers more choice in this growing new area, Google says. <>


ARO announced its plans to donate 100,000 brand new winter coats to homeless teens this holiday season - The donation is the culmination of Aeropostale's year long initiative to improve the lives of the growing number of homeless teens throughout the United States and Canada. During the month of November, Aeropostale will be delivering these coats to over 130 shelters and homeless agencies in all 50 states and Canada. Aeropostale designed these 100,000 coats exclusively for this outreach program; they will not be available in its stores or online. <>






  • Michelle Wilson, SVP, sold 9,600 shares in a 10b5-1 trading plan transaction for a gain of $1.15mm.
  • Tom Alberg, Director, sold 1,700 shares is a 10b5-1 trading plan transaction for a gain of $204k.


RL: Jakcwyn Nemerov, EVP, sold 10,500 shares for a gain of $840k.


FDO: Charles Gibson, EVP, sold 10,500 shares after exercising options to buy 10,500 shares for a net gain of $92k.


BGFV: Steven Miller, President & CEO, sold 5,000 shares for a gain of $89k.


TUES: Madison Dearborn Partners, 10% Owner, sold 20,000 shares for a gain of $65k.


ICON: Yehuda Shmidman, EVP-Operations, sold 3,300 shares for a gain of $34k.




As we often say at Research Edge, prices don’t lie. The market is always telling us something. Here are some names that are showing outside movements relative to the market, peers, and volume trends...


  • Consumer electronics was the best performing group with large volume driven by gains from RSH (which was upgraded yesterday – probably the right call).
  • Leisure equipment and products and apparel, accessories, and luxury goods outperformed yesterday on positive volume – a reversal of a weakening volume trend. RL, LIZ, JNY, OXM, PERY, and COH led the apparel, accessories, and luxury goods sector while only KCP, DLA, and APP took losses yesterday.
  • Internet and catalog retail was the worst performing sector with only a 0.2% gain for the day on light volume. LINT.A, LQDT, DSC, BIDZ, and PAYD helped internet and catalog underperform.
  • Outperforming stocks yesterday included ZLC, RSH, CHRS, and BKS. BKS is a big callout because it has had one of the largest turnarounds of any consumer discretionary stocks. Looking at the longer trends, this stock marked a bottom about 2 weeks ago off of longer broken durations and has been gaining momentum on the 1 week and 1 day with volume to confirm it all. ANF gets a positive callout for making the list of top 9 retail stocks for the first time in ages.
  • GOLF, CROX, ZUMZ, PSUN, and BIDZ were the worst performing stocks yesterday. CROX is breaking down on all durations but volume is weak.





Almost Perfect Parachutes

“Just because nobody complains doesn’t mean all parachutes are perfect.”
-Benny Hill
The Benny Hill Show was British comedy that featured sped-up film. Some nights, when I fast forward the Kudlow Report, I feel like I’m with Benny Hill in the 80’s all over again. Many thanks to Michelle Caruso-Cabrera for providing last night’s entertainment. Her currency analysis is definitely in a league of its own.
Benny Hill’s sketch-comedies usually closed with a chase scene where Hill would run after scantily-clad women. Ironically enough, after proposing to three different women in his real life, Benny never married.
Do you want to get married to the US stock market at yesterday’s closing high? I don’t. I took my cash position up to 67%. That’s the highest Asset Allocation I have had to Cash since the end of July 1st, 2009.
These Golden Parachutes of 2009 Wall Street compensation ($30 Billion in bonuses to the Big 3 Bankers – JP Morgan, Morgan Stanley, and Goldman) are almost perfect for the Too Big Not To Pay. Almost. Fortunately, almost isn’t good enough for the risk manager in me.
Per our friends at Wikipedia, the term Golden Parachute “is used to describe the effort to pay off someone in power… Originally, the term was used to describe bail-out packages given to dictators”...
Just because no one with political power in Washington complains about the Burning Buck moving into crisis mode doesn’t mean this perceived parachute of DOWN dollar is going to reflate your hard-earned life right before you have to comply with the laws of gravity. I am not in the business of trusting these politicians to pull the rip cord for my family either.
Yesterday, you saw the biggest one-day down move in the US Dollar since July. Was that the YTD low? What if it was? What if it wasn’t?
1.      If it was, the US stock market has a very stiff wind ahead of herself into year end.

2.      If it wasn’t, the US stock market only has one precedent of lower prices from here – the 2008 crash.

So that’s why I am selling down my exposure to virtually everything. At a price, Dollar down will start to hurt as much as Dollar up can. How bad can it hurt? I have no idea – and I’m not about to “take a chance again”, as Timmy Geithner is suggesting we should, either!
Yesterday was the 6th consecutive day of gains for the SP500. Since its March low, the SP500 has ripped the rails off of the Great Depressionista tracks for a +61.7% REFLATION. Benny Hill couldn’t speed this comedy up any faster than it’s played out. This has been the most expedited and hated rally in US stock market history.
As I was selling my long position in Germany (EWG) yesterday and pairing back my position in TIP (inflation protection), I was second guessing myself. I always do. But I woke up this morning and peeped my hockey head into my son’s room, and then walked down the stairs smiling. Selling early is cool.
One of my favorite investment quotes is from Bernard Baruch: “I made my money by selling too soon.” I think it’s a favorite because, philosophically, it stands for preservation of capital. I have never used leverage in my career. That has never made my returns the highest. But I have never lost money in a down market year either (2000, 2001, 2002, 2008).
When I first started this firm, I tried being everyone’s everything. That’s not me. My name is Keith McCullough, and I sell too early.
There are a few ways that I express a more conservative investment stance:
1.      Asset Allocation to cash – that’s climbed steadily for the past 6 days

2.      Virtual Portfolio – my ratio of longs to shorts has dropped from 3:1, to 1.2:1.0 (19 longs versus 16 shorts)

My investment model is to show everything I do, real-time, and mark it to market. If I am wrong (which I have been for the past 3 days on some shorts), all of our subscribers see that. There is no Level 3 drawer or a “side-pocket” in this thing.
I use a multi-factor global risk management model to augment my decision making. It’s not always right – but when it comes to losing money, it’s rarely really wrong. Here are some of the domestic market factors that have started to flash amber lights in the last few weeks:
1.      Daily risk/reward ratios for the SP500 have moved to a range of -3.5%-5% (downside) versus +0.5-1% (upside)

2.      Volume studies have collapsed as prices have risen (yesterday’s volume was down -17% versus last Monday’s market down day)

3.      Financials and Small Caps (leading indicators for liquidity risk) have broken their immediate term TRADE lines

Globally, we have recently seen markets like South Korea and Japan break both immediate and intermediate term lines of TRADE and TREND support. Despite China closing up for the 8th day in row last night (+74% for 2009 to-date), the Indian stock market remains under pressure (closing down again last night) as the government moves to quell domestic inflation (removing stimulus and raising rates).
The Golden Parachute of global free moneys isn’t a perpetual ride. It’s definitely not one that I need to be sped-up through, Benny Hill style, to the alter today. Getting married to stocks is for those Burning Buck sky-divers who are much braver than I. Gravity kills returns.
Best of luck out there today,



EWT – iShares Taiwan With the introduction of “Panda Diplomacy” Taiwan has found itself growing closer to mainland China. Although the politics remain awkward, the business opportunities are massive and the private sector, now almost fully emerged from state dominance, has rushed to both service “the client” and to make capital investments there.  With an export industry base heavily weighted towards technology and communications equipment, Taiwanese companies are in the right place at the right time to catch the wave of increased consumer spending spurred by Beijing’s massive stimulus package.

XLU – SPDR Utilities
We bought low beta Utilities on discount on 10/20. TRADE and TREND bullish.

GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

CYB – WisdomTree Dreyfus Chinese Yuan
The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP – iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

EWY – iShares South Korea South Korea has joined Japan in the ominous position of broken TREND and TRADE. This is not China or Taiwan. This is an early cycle economy that we want to be short against China/Taiwan.

XLI – SPDR Industrials We shorted Industrials again on 11/9 on the up move as the US market made a lower-high.  This is the best way for us to be short the hope of a V-shaped recovery.   

EWU – iShares UK Despite areas of improvement, broader fundamentals remain shaky in the UK: government debt continues to expand, leadership in critical positions lacks, and the country’s leverage to the banking sector remains glaringly negative. Q3 saw its GDP contract by -0.4%. Further bank stimulus and the BOE’s increase in its bond purchasing program suggest that this will not end well.

XLY – SPDR Consumer Discretionary We shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30. TRADE and TREND bullish.  

EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

UUP – PowerShares US Dollar
We re-shorted the US Dollar on strength on 10/20. There continues to be no government plan to support it.

FXB – CurrencyShares British Pound Sterling The Pound is the only major currency that looks remotely as precarious as the US Dollar. We shorted the Pound into strength on 10/16.


SHY – iShares 1-3 Year Treasury Bonds  If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.

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The Macau Metro Monitor.  November 10th, 2009



Sands China is seeking to raise as much as HK$25.96 billion from Hong Kong’s second-largest stock market listing this year behind China Minsheng Banking Corp’s planned share sale.  The Macau company said it had secured commitments from lenders for US$1.45 billion of the US$1.75 billion being sought in new debt financing, according to a pre-listing document posted yesterday.


Sands China plans to use the new project financing loans to complete Lots 5&6.  Commentators are unsure that the market will support the 16.5x 2010E EBITDA multiple being sought for the shares.




Macau may be forced to ration drinking water as reservoirs run dry.  There are signs that non-essential supplies may be cut off as early as this weekend.  Some suggest that Macau only has ten days of fresh water left.  Macau’s usual water sources have been depleted by drought and, unless a deal is struck with water companies in Guangdong province, rationing could come into effect. 


Hong Kong struck a deal with Guangdong province last year that would guarantee water supplies.  Macau’s government may seek to strike a similar deal to protect its main revenue source from the impact of the drought. 


The positive momentum should continue



Great Canadian is reporting Thursday after the close.  Barring abnormal hold issues, we think they should beat consensus.  The Street projects a sequential uptick in revenues to $97.8MM but margins down 100bps, and therefore flat EBITDA at $30.4MM.  We have 3Q09 revenues at $99.5MM and EBITDA at just over $33MM.


Local Government Share of GC's BC property revenues increased 6% sequentially for the three month period ended Sept 30, 2009.  The local share of government revenue is usually a good directional indicator for GC's results.  The completion of two projects and the opening of the Canada Line should have a positive impact on the next few quarters.  Unlike other expansion projects, View Royal and Georgian Downs were truly "capacity constrained" properties and therefore we believe that the additional slots should produce healthy ROI's.


We expect GC to continue to have positive momentum going into the 2010 Olympics, although, like everything else, GC isn't quite as cheap as when we initially turned positive on it back on 4/5/09 in our "GC: GOOD CANADIAN GAMING" post. 





Construction/renovation commentary:

  • The completion of River Rock’s redevelopment project and the associated opening of the Canada Line will obviously assist that property.  However, in an effort to combat the slot play pressure, we are also making modifications to the gaming experience at not only these facilities but all our British Columbia casinos.
  • A more significant refresh of our gaming option is currently taking place at every one of our BC casinos.  I anticipate that this refresh, which will involve both machine replacements and conversion, will be immediately appreciated by our more frequent patrons.
  • We expect that View Royal on Vancouver Island will add 120 new slot machines on August 18th
  • We expect Georgian Downs in Ontario will add 400 machines on August 26th.  Despite that province being especially hard hit by a weakened economy, Georgian Downs’ gaming volumes have remained resilient, underscoring our belief that its market is crucially underserved.
  • Canada Line will commence operation on Monday of next week, August 17th.  By the end of September, we expect to finish construction on the associated parkade.  And in November, we expect River Rock’s own renovations, as well as the walkway connecting the facility to the station, to reach completion.
  • We’re not going to make decisions to bring things [deferred projects] back until we see very definitively that people are coming and that the existing expenditures are utilized to their maximum. And only when we’re busting at the seams and it’s absolutely clear that additional CAPEX needs to be spent, that’s when we’ll bring them back.



  • Go-forward would expect a [EBITDA] margin of around 32 percent? 
    • Yes, that’s what we’re thinking.  We do believe the vast majority of these cost reductions are sustainable going forward and, you know, barring that things don’t get worse
  • Can just comment quickly on...what the [3Q] quarter so far looks like in terms of traffic and gaming dollars, if there’s been any improvement?  
    • It has not gotten worse, that’s for sure
  • On View Royal can you give us an idea of what the incremental costs might be for that additional gaming capacity?
    • Minimal



  • Average spend is, again, the most significant thing that’s affected us, the first thing that we noticed and that continued on.  Visitation levels have softened a little bit but not significantly.  The biggest part is average spend.


MCD is so competitive at breakfast it’s tough to imagine that a typical McDonald's store can support more customers during that day-part (you can only get so many people through a drive-thru).  The major QSR competitors don't have a competitive breakfast offering and those competitors who serve breakfast don't have a drive-thru that's competitive.


It looks increasingly like MCD will be rolling out a nationwide $1 menu at breakfast.  The first test market for the new $1 menu was Chicago. 


Today, Dunkin' Donuts is debuting a new 99-cent menu at 500 Chicago locations and handing out 20,000 cards pre-loaded with $2 each. 

The 99-cent menu includes a sausage, egg and cheese wrap; bacon, egg and cheese wrap; egg and cheese wrap; raspberry Danish; hash browns; and a pack of five Munchkins.  As part of its 99-cent menu, Dunkin' is offering a new wrap -- a sausage version -- available only in Chicago. 

According to the company, the 99-cent menu at Dunkin' will only last through Dec. 26, but the reality is that it will be a permanent fixture on the menu.


Extreme discounting is now moving to the most profitable part of the day.

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