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Earlier today, CKR reported period 10 and fiscal 3Q 2010 same-store sales results.  Comparable sales trends continued to decline on a 2-year average basis at both Hardee’s and Carl’s Jr. in period 10 and in Q3.  Carl’s Jr.’s top-line performance continues to be extremely weak with period 10 and Q3 same-store sales -7% and -5.2%, respectively.  On a 2-year average basis, these results represent a 155 bp sequential decline in period 10 and a 120 bp decline in the quarter. 


Trends at Hardee’s have slowed as well, though not to the same magnitude as Carl’s Jr.  Same-store sales  declined 3.4% in period 10 and -1.8% in Q3 with 2-year average results declining 75 bps on a sequential basis from period 9 and 55 bps from Q2.  CEO Andrew Puzder again attributed the sales weakness to high unemployment and escalating industry discounting.


CKR also issued Q3 restaurant level margin guidance of 18% to 18.3%, implying 10 to 40 bps of YOY improvement.  With blended same-store sales down 5.4% in the quarter, margin growth is impressive, particularly with depreciation expense as a percentage of sales expected to increase 80 bps YOY as a result of the company’s ongoing remodel program.


Lower food and packaging costs, which are forecast to decline 165 to 175 bps YOY as a percentage of sales, are helping to support margins in this tough sales environment.  After Q3, CKR only has one more quarter of relatively easy food cost comparisons.  In 4Q09, food costs as a percentage of sales were flat, but turned more favorable on a YOY basis in 1Q10 (down 60 bps).  As this YOY food cost benefit moderates going forward, it will be increasingly more difficult for the company to maintain restaurant level margins with the current trajectory of sales trends.  The first chart below shows how margins have continued to grow on a YOY basis despite the significant fall off in comparable sales trends (3Q10 YOY margin growth estimate reflects management’s 18%-18.3% restaurant level margin guidance).  This is not sustainable.  Positive sales growth will be needed to maintain margin growth trends.


Prior to Q3, lower YOY labor expense had helped to support margin growth for the last six quarters.  This, too, was an unsustainable trend without eventual damage to the overall customer experience.  To that end, I think it is encouraging that management is guiding to a 100 to 110 bp YOY increase in labor and employee benefit costs as a percentage of sales in Q3.









US STRATEGY – Great Wars

Today is, of course, Veteran’s Day, which is the annual American holiday that honors military veterans.  November 11th is the anniversary of the signing of the Armistice that ended World War I.  This Armistice was signed on the 11th hour of the 11th day of the 11th month in 1918.  World War I has been called the Great War due to its massive scale.  More than 70 million military personnel were mobilized in World War I and, sadly, there were more than 15 million casualties. 


In the global stock markets this year, there is a more symbolic Great War going on.  This war relates to stock market performance in the year-to-date.  Despite a S&P500 that is approaching year-to-date highs, the major indices are well behind in the stock market performance battle this year as many global markets are up 2 – 3x the broad U.S. market performance.


The S&P 500 six day winning streak ended yesterday. The S&P 500 finished slightly lower on Tuesday after a big up day on Monday.  Both the MACRO calendar and the earnings calendar was very light yesterday.  Although we are waking up to some positive news out of China.  In October, industrial production and Retail sales rose 16.1% and 16.2%, respectively.  The futures are higher on this news.  So while China looks poised for another victory over the U.S. stock market based on this internal growth, unlike military campaigns, this is not a zero sum situation.  A strong and growing China is positive for the global economy, and U.S. equity markets, as we are seeing in the futures this morning.


Yesterday, the VIX fell another 1.3% and the dollar index was slightly higher yesterday. 


The three best performing sectors were Healthcare (XLV), Utilities (XLU) and Consumer Discretionary (XLY).  The XLV was up 0.7% yesterday, the best performer on the day as defensive-oriented sectors found a bid.  The Hospitals and Managed Care were among the best performers. 


Within Consumer Discretionary, retail stocks finished higher for a fourth straight day.  Priceline (PLCN) was the best performing stock in the ETF after reporting better-than-expected Q3 revenue and earnings. On the coattails of PLCN, Amazon and Expedia were also higher on the day


The worst performing sectors were Technology (XLK), Financials (XLF) and Industrials (XLI). While the XLF rallied at the end of the day, it was still the second worst performing index on the day.  MBI was the biggest factor after reporting a loss of $3.90 per share, or $727MM.  Not surprisingly, the continued pressures from a weak housing market are to blame.  Regional banks were also weak on the day. 


Today, the set up for the S&P 500 is: TRADE (1,070) and TREND is positive (1,034).   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 1% upside and 2% downside in the S&P 500.  At the time of writing the major market futures are poised to open up small to the upside. 


The Research Edge MACRO Team.


US STRATEGY – Great Wars - S P500

US STRATEGY – Great Wars - s pperf



November 11, 2009





This morning’s announcement that Best Buy is testing the sale of fitness equipment in 40 stores caught our eye. Yes, we respect the concept of the “test” and realize it would be unwise to make wide sweeping predictions based on something that is in so few stores and still in its infancy.  However, we can’t help but wonder how fitness equipment will ultimately fare within the Best Buy box.  A couple of points to consider:


  • Women dominate fitness activity participation and likely have a disproportionate influence on purchasing decisions related to fitness equipment.  
  • Best Buy is probably one of the most male-oriented retail concepts given the nature of the products it sells.  With that said, consumer electronics are about 50/50 when it comes to purchases by men/women.  More balanced than one might think, but still far less than the 70+% of apparel purchased by females.
  • Best Buy is highlighting the ability of its Geek Squad to install new equipment in home.  This will likely require some training to get the “Squad” up to speed on assembling treadmills or will require a massive recruiting effort to find employees with expertise in computers, home theater, AND fitness equipment.  Also, seems odd that the Geek Squad will also now be involved with heavy lifting (literally).
  • Historically, fitness equipment has been a tough category for most retailers.  The slow-turning, highly seasonal, and high ticket nature of stationary bikes, treadmills, and elliptical machines has not been a great driver of margins or inventory turns.  Additionally, fitness can be a trendy business as both new technology (i.e the introduction of the elliptical machine) and new fitness techniques (i.e yoga, not new but definitely more popular than ever) come and go every few years. 
  • Finally, although fitness equipment sales to consumers may actually be stabilizing this is truly a discretionary category.  Perhaps the time is right from the perspective of entering the business at the bottom, but this category will need a macro-driven recovery to see a meaningful pick up.

-Eric Levine




Some Notable Call Outs


  • In an effort to streamline inventory management and better align inventories with sales, management of American Apparel suggested a somewhat novel solution. They basically suggested that they are going to grow out of their over-inventoried position, by either opening more stores (to put the inventory into) and/or waiting for a rebound in the wholesale business (which is highly macro driven). While supply chain efficiencies and new systems are also part of the plan, this was one of the more “blunt” solutions we have heard in a while when it comes to inventory reduction.


  • Fossil management indicated that the consumer is chasing fashion and willing to pay up for it. The company reported strong sales in the higher priced Michele fashion-luxury brand, in the licensed Michael, by Michael Kors brand, and in the higher priced fashion offerings within the Fossil line. Overall, $85 fashion watches were top sellers in the third quarter, which compares with an average $55 price point for the basic line. As an added note, 45% of the company’s watch sales will take place over the next 10 weeks.


  • As expected, the holiday season is heating up and it’s heating up early. As retailers jockey for position to “one-up” Black Friday, Best Buy is set to promote an Acer laptop for $250 beginning tomorrow. The no-frills model is likely to be the lowest priced laptop in the mass market, until we see others (Walmart?) join the promotional party. With prices on full sized laptops at these levels, it’s not hard to see where prices on netbooks are heading…





Mitchells Acquires Wilkes Bashford -Late Monday night, the Mitchells, operators of the largest family-owned specialty store in the U.S. with sales of $100 million, inked an 11th-hour deal to acquire the assets of Wilkes Bashford, which simultaneously filed a voluntary Chapter 11 petition. The deal by Ed Mitchell West LLC is for $4.6 million in cash and is subject to higher offers and bankruptcy court approval. A contingency of the sale is that the purchase be completed by Nov. 30 in order to maximize business during the holiday selling period, according to Bob Mitchell, co-president of Mitchells. <wwd.com>


Fred Leighton Acquisition Completed - Fred Leighton has a new beginning after almost two years in bankruptcy. FL Acquisitions LLC — comprised of Kwiat Enterprises and Och-Ziff Capital Management Group — and FOF Inventory Holding LLC signed a deal Tuesday to acquire all of the assets of Fred Leighton Holding Inc. for $25.8 million. Kwiat chief financial officer Greg Kwiat has been named chief executive officer of Fred Leighton, in addition to his post at Kwiat. FL Acquisitions acquired the Fred Leighton stores in New York and Las Vegas, as well as all Leighton trademarks and intellectual property. Leighton’s Beverly Hills store, opened in 2008 by then-president Peter Bacanovic, closed last month. FL Acquisitions and FOF Inventory Holding jointly acquired the fine jewelry inventory. <wwd.com>


Arcandor Seeking Buyer for Karstadt - The search is about to begin for a buyer for the insolvent Arcandor Group’s Karstadt department store chain, insolvency administrator Klaus Hubert Görg said at a creditors’ meeting on Tuesday. Unlike Quelle, Arcandor’s catalogue business which is being liquidated, Görg said a restructuring of the insolvent 126-door department and sports store group was the “best alternative for all participants.” He remains committed to a sale of the group as a whole, and said there have been several serious offers, though he declined to be more specific. The Metro Group, which runs the competing 113 German Galeria Kaufhof department stores, has long expressed interest in taking over some, but not all, of the Karstadt doors. No official offer has been made. <wwd.com>


Former Wal-Mart CEO Lee Scott Joins Private Equity Firm - Former Wal-Mart Stores Inc. chief H. Lee Scott Jr. has jumped into the private equity game and joined Solamere Capital, an investment firm cofounded by Tagg Romney, son of former Republican presidential candidate Mitt Romney. Scott, who earlier this year ended a nine-year run as president and chief executive officer of Wal-Mart, will be an operating partner and member of the Lexington, Mass.-based firm’s investment committee. Scott will review investment opportunities and help grow companies in which Solamere takes stakes. <wwd.com>


Baucus Pushes Asia-Pacific Trade Pact - Senate Finance Committee chairman Max Baucus (D., Mont.) proposed a blueprint for trade on Tuesday, with the Asia-Pacific region as its centerpiece. Baucus prodded President Obama, who is leaving Thursday on a seven-day trip to Asia, to pursue a regional trade pact with key Asian trading partners. He outlined the goals to a sold-out audience of trade importers and associations at an event cosponsored by George Washington University’s Institute for International Economic Policy and the Washington International Trade Association. Baucus called on Obama and Congress to be more aggressive on trade, saying the U.S. must expand commercial ties to other Asian nations while maintaining a steady trade relationship with China. He said a balance, including stronger labor and environmental provisions, was needed in trade deals. <wwd.com>


Skechers will bring fashionable scrubs to medical professionals - Skechers will bring a fashionable line of medical scrubs to health professionals beginning in January. Nurses and doctors will have a new option to look fashionable in their scrubs. Skechers USA Inc., the Manhattan Beach-based maker of fashionable shoes and apparel, said Tuesday that clothing manufacturer Strategic Partners Inc. will produce and distribute Skechers brand clothes for health care professionals. Starting in January, Skechers medical apparel will hit independent uniform retail stores. The deal represents the first time the Skechers brand will be used for an industry-specific market, Skechers spokeswoman Jennifer Clay said. "Many medical professionals wear our Skechers Work slip-resistant footwear on the job, so developing medical apparel branded with Skechers is a natural extension of Skechers will introduce fashionable medical apparel in January 2010. <dailybreeze.com>


China’s Economy Strengthens, Boosting Yuan Calls - China’s industrial production and trade surplus climbed in October, indicating a strengthening recovery in the world’s third-largest economy that’s likely to amplify calls to let the yuan appreciate. Today’s figures come days before leaders from the Asia- Pacific region gather in Singapore, and a visit by U.S. President Barack Obama to Beijing, where he plans to raise China’s currency policy. Premier Wen Jibed has so far rebuffed pressure to loosen reins on the yuan, awaiting a bigger rebound in exports in an effort to secure social stability and job gains. <bloomberg.com>


China: Retail sales up 16.2% in October - China's retail sales in October has seen substantial growth, with an increase of 16.2% year on year to US$ 171 billion, according to the National Bureau of Statistics. Although the rise was 5.8% lower than that of a year earlier, but 0.7% higher than that in September. The first 10 months saw a 15.3% growth in retail sales to 10.14 trillion yuan year on year. The rate was 6.7% down from the same period last year, and 0.2% up from the first nine months this year. <fashionnetasia.com>


UK: October retail sales see highest hike in seven years - UK retailers last month have seen their biggest October sales growth for seven years, with clothing sales helped by sales of children's Halloween costumes, according to the British Retail Consortium (BRC). Retail sales values rose 3.8% on a like-for-like basis from October 2008 while sales rose 5.9% against a 0.1% decline in October 2008 on a total basis. Clothing and footwear showed stronger growth than in September, the BRC said. <fashionnetasia.com>


Fast Retail Passes Seven & I as Japan’s Top Retailer - Fast Retailing Co., operator of the Uniqlo casual-clothing chain, rose to a record in Tokyo trading, overtaking Seven & I Holdings Co. as Japan’s largest retailer by market value. Fast Retailing added 1.4 percent to close at 16,920 yen on the Tokyo Stock Exchange, the highest level since the stock first traded in April 1997. The gain gives it a capitalization of 1.79 trillion yen ($20 billion), while Seven & I, operator of the 7-Eleven convenience-store chain, fell 0.7 percent to 1,948 yen, cutting its market value to 1.77 trillion yen. <bloomberg.com>


Retail Forward: Holiday Shoppers Cautious, Less Pessimistic - Consumers plan to cut holiday spending habits by 45 percent this holiday season, compared to the 53 percent who planned cutbacks last year, according to Retail Forward's ShopperScape results for October. Meanwhile, shoppers surveyed also said they plan to increase their near-term spending by 9 percent versus last October's reported 8 percent. Retail Forward reports that the more positive feelings toward holiday spending this year could be attributed to its survey findings on household financial health, which says more shoppers are better off in terms of their credit card debt levels, monthly mortgage and car payments than are worse off. However, other data points to consumer indecisiveness with 42 percent saying they don't how much they will spend and 20 percent saying they don't know how much of their budget they've spent so far. <licensemag.com>


J.C. Penney's Sets Up Facebook Holiday Campaign - For the first time, J.C. Penney is staking out holiday turf on Facebook. As part of its “Joy of Giving” marketing campaign, Penney’s is starting a virtual community on its Facebook page, enabling visitors to exchange stories about how they give joy, browse gifts and click through to jcp.com, where they can purchase presents online. Designed by T3, an Austin, Tex.-based digital marketing agency, the online destination was to go live Tuesday. In a preview of the holiday network, gift givers spotlighted in photos of themselves on red gift tags — suggesting they are giving of themselves — have posted responses to the question: “How do you give joy?” Answers run from “I surprise my wife by cleaning the house” to “baking my chocolate chip cookie recipe for all my friends” and “volunteering to read for the blind.” <wwd.com>


Luxury Brands Acclimate to the Internet - Luxury brands may only just be learning to effectively communicate on the Internet, but they are chattering up a storm — and one voice is calling for more clarity. “Brands have been so criticized for lateness, they are overcompensating,” said Uché Okonkwo, founder of the Paris-based consultancy Luxe Corp and author of “Luxury Online,” due out this month from Palgrave Macmillan. “Social media is a means to an end. Getting it right means first assimilating what it’s about, and that takes time. Brands are smart, which is why it’s so surprising when they go wrong online.” <wwd.com>


Chanel, World Tricot Court Decision Due - Chanel will learn Dec. 11 if it has to pay damages to World Tricot, the French knitwear supplier, which alleged the couture house copied one of its crocheted designs in 2005. The case was heard last week before a commercial court here. Carmen Colle, president of World Tricot, which manufactured high-end knits for Chanel for seven years, is seeking 2.5 million euros, or $3.7 million, in damages after she spotted what she said was Chanel’s take on a World Tricot sample in a Chanel boutique window in Tokyo in March 2005. Chanel denied the allegations, which it said have tarnished its image, and is counter-suing for 500,000 euros, or $742,855, for commercial prejudice and 1 euro, or $1.50, in moral prejudice, a company spokeswoman confirmed. Dollar figures were converted at current exchange rates. <wwd.com>


Dooney & Bourke Chairman Sentenced to Prison - Frederic Bourke, the co-founder and chairman of accessories firm Dooney & Bourke, was sentenced on Tuesday to one year and one day in prison for his role in a conspiracy to bribe officials in Azerbaijan. U.S. District Court Judge Shira Scheindlin in Manhattan said Bourke, who was convicted in July after a monthlong jury trial, knew of the bribes but was not the plot’s originator. She also fined Bourke $1 million and ordered him to serve three years of supervised release. He was allowed to remain free on $10 million bail, pending his appeal. Scheindlin said he was not a flight risk and there were facts in the case that could result in a new trial or reversal. <wwd.com>


‘Sesame Street’ turns 40 with American Apparel T-shirts and totes - As the first generation of "Sesame Street" viewers veers toward middle age, it’s hard to believe that the show that introduced generations to Kermit the Frog, Bert and Ernie, Oscar the Grouch, Elmo and, of course, Big Bird, turned the big 4-0 yesterda. Sesame's 40th season debuted on the tube this morning with a special appearance by First Lady Michelle Obama and Cameron Diaz, brought to you by the letter “H” and the number 40. <latimes.com>







  • William Fisher, 10% Owner, sold 99,000 shares to GPS in a share repurchase agreement for a gain of $2.2mm.
  • Robert Fisher, Director & 10% Owner, sold 114,000 shares to GPS in a share repurchase agreement for a gain of $2.6mm.
  • John Fisher, 10% Owner, sold 141,000 shares to GPS in a share repurchase agreement for a gain of $3.16mm.
  • Doris Fisher, Honorary Director & 10% Owner, sold 289,800 shares to GPS in a share repurchase agreement for a gain of $6.5mm.


AMZN: John Doerr, Director, sold 11,500 shares after converting 2,300 restricted stock units on a one-for-one basis for a net gain of $1.45mm.



  • Robert Gordon, SVP, sold 75,000 shares after exercising options to buy 75,000 shares for a net gain of $213k.
  • Bruce Everette, EVP, sold 75,000 shares after exercising options to buy 75,000 shares for a net gain of $213k.
  • Donald Wright, SVP, sold 14,000 shares after exercising options to buy 14,000 shares for a net gain of $40k.


WAG: David VanHowe, VP, sold 18,000 shares after exercising options to buy 15,000 shares for a net gain of $216k.



  • James Kelly, President & COO, sold 95,000 after exercising options to buy 95,000 shares for a net gain of $855k.
  • Barry Sullivan, EVP, sold 9,000 shares after exercising options to buy 9,200 shares for a net gain of $31k.


LIZ: William McComb, CEO, sold 9,000 shares for a gain of $48k.


TBL: John Crimmins, CFO, sold 3,400 shares after exercising options to buy 3,400 shares for a net gain of $9k.


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Powered By Pride

“I will never quit. I persevere and thrive on adversity. My Nation expects me to be physically harder and mentally stronger than my enemies. If knocked down, I will get back up, every time. I will draw on every remaining ounce of strength to protect my teammates and accomplish our mission. I am never out of the fight.”
-US Navy SEALs
That quote was cited by Marcus Luttrell - Team Leader, SDV Team 1, Alfa Platoon - as the central paragraph of the philosophy of the US Navy SEALs. I am Canadian. My son is American. That’s the kind of American Leadership we can believe in.
In 2007, Luttrell wrote an eye witness account of his SEAL Team’s deadly fight in Afghanistan. It was titled Lone Survivor. The true story remains the most impactful military book I have read this year. It’s All American in a way that the US Financial System used to be – powered by pride and accountability.
Today is Veteran’s Day. On behalf of everyone on my team, I would like to thank the bravest men and women of America for providing us the opportunity to wake-up and do what we do every day.
Yesterday marked another day of lower-highs for the US stock market. Closing flat on the day at 1093, the SP500 is only -0.4% off of the closing-high established on October 19th, and a full +61.7% higher than where a lot of market strategists called this entire system “out of the fight.”
America always finds a way to fight back. This time, we took a page out of FDR’s playbook and we fanned the fires of deflation by devaluing our currency. To a point, Breaking the Buck (we called for Obama to do that on February 24th) was something everyone on the American team could tolerate, to protect their teammates.
Then, predictably, some Washington and Wall Street individuals got greedy. Instead of Breaking it, they started Burning it. The Bankers, Debtors, and Politicians got paid. The American Savers and Consumers got the bill.
What does your Nation expect of you? What do you expect of your Nation?
My greatest fear in American finance today is that memories on Wall Street are as short as their last text message. There was a lot of economic sacrifice in this country, by a lot of people. The 119,000 employees of JP Morgan, Morgan Stanley, and Goldman didn’t get us out of this financial mess. The American team did. Sadly, only a select few deem themselves worthy of the reward.
If you show me 30 Billion reasons why The Big 3 Bankers in this country deserve $30B in bonuses in 2009, I’ll show you the cowardice that only a Taliban terrorist dressed as a goat herder can rival in Afghanistan. There is no pride in watching you people behave like this. It’s un-American.
The only way out is for American financiers to start behaving like patriots again. It’s time to “draw on every remaining ounce of strength to protect” our teammates , “and accomplish our mission.” It’s time to look this American Credibility Crisis in the eye, raise interest rates and strengthen our currency. Capitalizing the balance sheets of a select few and kicking a socialized can of losses down the road to our neighbor’s children is gutless resolve.
On the heels of America’s Squirrel Hunter (Geithner) saying the following in Tokyo today, the Buck is Burning down to another YTD low at $74.85:

“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar”

Enough of what you believe “deeply” already. No one believes you, dude. Your voice is being laughed at by the Chinese. The world is using your conflicted compromise to engage in carry trading with our hard earned American currency. Your voice is a metaphor for the Lone Survivor in American Leadership lost.
It’s time to find that American voice again. It’s time to power the US Financial System with pride and accountability again. Let’s get on with it.
“I’m a sniper, and I’m the platoon medic. But most of all, I’m an American.”
-Marcus Luttrell
My immediate term TRADE lines for the SP500 are now 1070 (support) and 1101 (resistance).
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.

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.


The Macau Metro Monitor. November 11th, 2009



LVS plans to begin preliminary work in January to restart lots 5&6.  At 13.3 million square feet of net developable area, the new project would be even larger than the Venetian Macau.  The company says it needs around $2 billion to finish the halted portion of the projects; thus far the company has secured financing from banks of around $1.45 billion. 


A person “familiar with the matter” disclosed that the company plans to use roughly $500 million the proceeds from the upcoming IPO to finance Macau construction. 





Casino operator Galaxy Entertainment said Wednesday its HK$14.1 billion (US$1.81 billion) flagship casino resort in Macau is scheduled to open in the first quarter of 2011.  The opening has been delayed for one year.  Galaxy has already committed HK$5.1 billion to the project, named Galaxy Macau.  The company is not considering a share placement as a means to raise the capital needed to complete the financing for the project.  The company plans to release details on its financing plans for the project within 45 days. 




On November 8th we posted a note titled “A Busy Quarter Indeed,” in which we erroneously attributed earnings release information to Wendy’s International (WEN).  The earnings information in question was that of Trian Acquisition Corp, Inc. (TUX).  There is an existing business relationship between Wendy's and Trian Fund Management L.P., however our report was a simple error.  No conclusion or inference should be drawn from it regarding any relationship or transaction between the entities. 


We apologize for any confusion this may have caused.


Howard Penney

Managing Director


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