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    November 13, 2009





    It looks like Dollar General is pricing at the low end of the $21-$23 range.  This seems to run counter to the bulk of feedback in my in-box yesterday about how this stock would ‘rip’ on day 1 due to such solid demand. Maybe the capital market mensa society that is Goldman, BAS, Citi and JP Morgan have some secret strategy to price at the low end and make people think they’re getting a deal to spur last minute demand. As noted in our DG BlackBook, the assumptions I need to make in order to sustain the rebound in asset turns and margins that DG is printing today are way too hefty for me given the current economic backdrop.  


    Rue21, however, priced at $19, above the $16-$18 range. For those unfamiliar with RUE, it is basically Aeropostale meets Buckle meets Steve and Barry’s (which went bankrupt last year). Virtually everything in the store is under $30.

    The key here, however, is growth, and EPS momentum. For better or worse, the hedge fund community is banking that RUE will smoke numbers for the next two quarters. Then is looking at what is legitimate square footage growth as the company takes its concept from 500 stores to 1,000 over 5-years.


    What’s interesting is that RUE has the same underwriters (sans Citi) as DG. If you got your hands on some RUE, congratulations. If not, and your salesperson is calling you this morning with a DG consolation prize, then my condolences.




    Some Notable Call Outs


  • Wal-Mart’s key message out of its 3Q conference call is that the company is focused on stepping up its marketing message and reinforcing its price leadership position. With two-thirds of its marketing budget covered by co-op, the company is clearly leveraging its scale and dominant share to drive an aggressive value message over the coming weeks.

  • While most investors likely view Kohl’s 4Q guidance as conservative, it’s easy to come to that conclusion. The company is entering the holiday season with 40% less clearance inventory year over year. Additionally, the company continues to benefit from tight inventory management relative to sales trends and improved product costs year over year. Barring an all out promotion-fest across the retail landscape, the sales and margin compares look to be setting up for some upside when the holiday is finally complete.

  • Both Kohl’s and Wal-Mart reported substantial growth in their ecommerce business. Wal-Mart’s increased by 20% while Kohl’s tracked up 30%. Both companies are bullish on the opportunity for the direct channel and were quick to point out their above-industry growth.

  • In one of the more articulate and upfront discussions about ecommerce, the CEO of Urban Outfitters described the growth in online sales (up 21% in 3q) as a “secular shift in the way the customer is shopping”. The company is increasingly focused on Facebook and social media, highlighting that there are now over 208,000 “fans” on the company’s Facebook accounts (in just a few months since they launched). The quote of the call however, was that the social networking phenomenon is “word of mouth on steroids”. The big challenge here is recognizing that good news and bad news can now travel to large audiences equally as fast.
  • Despite a penny miss relative to the Street, Nordstrom’s 3Q results appear to be setting the stage for a solid 4Q.  While most are focused on the apparent “miss”, the company’s inventory position has not been in better shape in 2 years, as we head into the holiday selling season. Additionally, 3Q marked the first quarter of gross margin expansion since 2Q08, which when combined with a 10% decline in inventory/foot suggests even management’s slightly more bullish stance may still be conservative.




    Fed May Cause Next Crisis, Hong Kong’s Tsang Suggests - The Federal Reserve’s policy of keeping interest rates near zero is fueling a wave of speculative capital that may cause the next global crisis, Hong Kong’s leader said. Fed Chairman Ben S. Bernanke, a scholar of the Great Depression, has overseen a record injection of liquidity into the world’s largest economy, pledging not to make the mistake of the 1930s, when officials tightened policy. Tsang’s warning contrasts with pledges by the Group of 20 nations that represent the world’s biggest economies to keep stimulus measures in place. “We have a U.S. dollar carry trade at the moment,” Tsang, 65, said in a speech where leaders of the Asia Pacific Economic Cooperation forum are gathering for a weekend summit. The carry trade is where investors borrow cheaply in one currency and use the funds to invest in other currencies. “Where is the money going -- it’s where the problem’s going to be: Asia,” Tsang said. “You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.” <bloomberg.com>


    Europe’s Economy Emerges From Recession on Exports - The euro-area economy emerged from its worst recession since World War II in the third quarter as exports from Germany and France helped compensate for households’ reluctance to increase spending. Gross domestic product in the economy of the 16 nations using the euro rose 0.4 percent from the second quarter, when it fell 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast the economy to grow 0.5 percent, according to the median of 34 estimates in a Bloomberg survey. Europe’s economy is gathering strength after governments stepped up stimulus measures and the European Central Bank injected billions of euros into markets to encourage lending. While confidence in the economic outlook is at a 13-month high, rising unemployment, the expiration of stimulus plans and a surging euro are threatening to undermine a recovery. <bloomberg.com>


    Japan Risks Economic Slowdown as DPJ Debates Stimulus - Japan’s economy probably expanded at the fastest pace in more than a year in the third quarter, helped by emergency spending by the former government that Prime Minister Yukio Hatoyama wants to phase out. Gross domestic product grew an annualized 2.9 percent, following a 2.3 percent expansion in the three months ended June 30, according to the median forecast of 20 economists surveyed ahead of the GDP release due Nov. 16. Domestic demand will make up more than half of the expansion for the period, the first time that’s happened since the first quarter of 2007, according to the median projection. Hatoyama’s plan to redirect what he termed the wasteful spending implemented by the ousted Liberal Democratic Party clouds the outlook for growth in 2010, analysts say. <bloomberg.com>


    Troubled Chicago Retail Project Might Open Soon - Despite a foreclosure lawsuit, developers of Chicago’s Block 37, which includes a 285,000-square-foot retail component, are pushing to open a section of the center before Thanksgiving. Zara, Anthropologie, Puma, Steve Madden and Swarovski are among the stores. Last month, a group of banks led by Bank of America filed suit against developer Joseph Freed & Associates LLC charging the company defaulted on $128.5 million. A Cook County Circuit Court judge Monday set a hearing for Nov. 20 on the banks’ request to put the project in receivership. Joseph Freed, which called the suit a “misguided action that could halt the project,” said it has signed leases with 13 new tenants including Sephora, L’Occitane and local specialty stores Michelle Tan and Claudia Kleiner Malabar Collection, which would be in a later phase of the project at 108 North State Street. <wwd.com>


    Wal-Mart, Kohl's Cautious About Outlook - Wal-Mart Stores Inc. and Kohl’s Corp. played the value game well in the third quarter, driving up sales and earnings, but both retailers were less bullish about holiday than Wall Street had hoped. The two retailers continued to forge ahead with expansion even as many competitors have avoided it in favor of cash preservation. “All over the world we’re gaining market share,” said Mike Duke, Wal-Mart’s president and chief executive officer, on a conference call. “We added more than 13 million square feet this quarter.” Still, profits at Wal-Mart rose 3.2 percent to $3.24 billion, or 84 cents a share. Kohl’s third-quarter net income shot up 20.6 percent to $193 million, or 63 cents a diluted share, but the company placed earnings in the current quarter at $1.14 to $1.24 a share, just below the $1.25 analysts projected. <wwd.com>


    Consumers embrace social shopping, new Deloitte survey reports - Retailers have been focusing lately on how they can harness online social media to generate sales, and the latest consumer poll from consulting firm Deloitte says they are right to have social media prominent on their radar screens.

    Deloitte’s 24th Annual Holiday Survey of 10,878 consumers reports that 22% of all consumers will do their primary shopping online this year. It also reports that consumers are adopting social media relatively fast, with 17% of all shoppers planning to use social media—Facebook, MySpace and other such online gathering and communication places—when they shop for gifts. And even though the users are skewed younger, they represent all ages up to 60: 52% of those who will use social sites are age 18-29; 33% are 30-44; and 12% are 45-60. <internetretailer.com>


    Footwear anti-dumping extension to cost 1bn euro - The European Commission’s proposal to extend anti-dumping duties on leather footwear from China and Vietnam would cost EU businesses and consumers in excess of €1bn (£90m) according to the European Footwear Alliance (EFA).

    Anti-dumping duties of 16.5% and 10% on leather footwear imported from China and Vietnam respectively could be extended beyond January if EU member states vote in favour of the European Commission’s proposal to extend them on November 19. The deadline for interested parties to lodge their objections to the proposed extension passed this week, but the British Retail Consortium and the British Footwear Association will continue to lobby member states. Submissions made to Drapers Dump The Duties campaign will be used to highlight the very real impact of the duties on businesses and consumers. <drapersonline.com>


    Japan’s Consumer Confidence Stalls as Wages Tumble - Japan’s household sentiment failed to rise in October for the first time this year as dwindling pay discouraged consumers. The confidence index stayed at 40.5, the highest since October 2007, the Cabinet Office said today in Tokyo. Sentiment had been rising every month since plunging to a record low in December. Today’s report indicates that the effect of government incentives to buy cars and electronics that probably helped the gross domestic product accelerate last quarter is starting to wane. Analysts say the stimulus boosts may have reached their peak, an indication that consumers, whose wages have been tumbling for 16 months, will be a drag on the world’s second- largest economy. <bloomberg.com>


    Brazil denounces the illegal “triangulation” of Chinese products - According to the National Secretary of the Development and Foreign Trade Ministry (MDIC), Welber Barral, Brazil is facing the challenge of solving tax problems for exporters who are having great difficulty in receiving tax credits. This is something which does not happen in competing nations such as China. "They are distortions which end up punishing Brazilian exporters and something we must correct", said Barral. The bureaucrat affirmed that there are products which are probably offered in Brazil on a "dumping" basis which otherwise would be taxed at a higher rate and which are coming into Brazil via "trade triangulation" from other countries so as to evade customs duties. Footwear could well be included in the mix. <fashionnetasia.com>


    Printemps Sees ‘Amazing’ Luxury Sales Amid $100 Million Refit - Spending on luxury apparel, jewelry and accessories is rebounding from a “difficult” summer, the head of Paris’s Au Printemps department store said yesterday as he took the wraps off a $100 million makeover. “Brands like Prada, Dior and Chanel are seeing amazing sales,” Chief Executive Officer Paolo de Cesare said in an interview at the 144-year-old store. Printemps marked the start of its holiday selling season last night by unveiling a spruced-up historical facade that’s been hiding behind scaffolding for more than two years. The store’s renovation, which is scheduled to run until next summer, will allow it to offer a wider selection of luxury brands and may result in “double-digit” revenue growth over Christmas and in the next few years, according to De Cesare. Optimism among wealthy shoppers is returning as economies emerge from recession. <bloomberg.com>


    Nike Opens Tokyo Flagship - Nike has brought its signature swoosh to one of this city’s trendiest neighborhoods. On Saturday, the athletic brand will open a sprawling new flagship in Harajuku, a district known for its cutting-edge street fashion and youthful clientele. Jeanne Jackson, president of direct-to-consumer for Nike Inc., said the athletics giant had thought about opening a significant flagship here for many years. The store was in the works before the economic downturn, but Jackson said she’s still optimistic it will be successful. She declined to give a sale estimate for the store. <wwd.com>


    Gap Opens Two Prototype - The San Francisco-based retailer is betting heavily on its new 1969 premium jeans collection with an 8,000-square-foot store opening here today at 528 Broadway on the corner of Spring Street. The first store of its kind, the store is also the first Gap unit to open in SoHo. The concept picks up where a Gap 1969 pop-up shop that opened in August on Robertson Boulevard in Los Angeles left off. The space was previously a Banana Republic men’s store, which moved to 552 Broadway, where it joined women’s in a new dual-gender prototype. “We had two goals for the store,” said Mark Walker, divisional merchandise manager overseeing the project. “The first was to make a store that really fit SoHo. The second goal was to really feature 1969 denim.” <wwd.com>


    Barrack, Rodos & Bacine is investigating potential claims on behalf of shareholders of Carter’s, Inc. - On October 27, 2009, Carter’s announced that it would delay its scheduled earnings release in order to complete a review of its accounting for margin support to wholesale customers. After the market closed on November 9, 2009, the Company announced that it would, in fact, need to restate its financial results for each fiscal year from 2004 through 2008 and for each fiscal quarter from September 2007 through June 2009. In response to these disclosures, the stock has declined nearly 24% and the Company has lost more than $350 million of market capitalization. <studio-5.financialcontent.com/>


    Tesco Forms China Venture to Build ‘Substantial’ Business - Tesco Plc, the U.K.’s largest retailer, said it formed the first in a series of joint ventures to build shopping centers in China as retail sales growth in the world’s most populous nation accelerates. The retailer will build three shopping malls in northern China in Anshan, Fushan and Qinhuangdao with a Tesco hypermarket anchoring each development, the London-based company said today in a statement. Tesco, which owns 65 large supermarkets and 6 small stores in China, said it wants to build a “substantial” business and plans to open 18 hypermarkets in the country by February. China’s retail sales and industrial production accelerated last month, bolstering forecasts for economic growth to exceed 10 percent this quarter. <bloomberg.com>


    Mango Eyes U.S. Expansion - The Spanish fashion retailer hopes to add 200 corners to its already-existing network of 12 stores, and is in talks with several potential partners. “We are in conversations with different U.S. department stores [to distribute the brand],” confirmed Isak Andic, Mango’s co-founder and chief executive officer. “We have not closed a deal yet, but a decision will be made very soon.” Candidates reportedly include J.C. Penney, Macy’s, Bloomingdale’s and Saks Fifth Avenue, although Andic declined to discuss with whom the retailer is in talks. <wwd.com>


    Arkansas Switches to Nike from Adidas - The University of Arkansas will enter into an all-sports apparel and footwear contract with Nike, beginning July 2010. An existing deal with Adidas expires June 30, 2010. "We are excited about our new partnership with Nike," Jeff Long, athletic director for Arkansas, said in a statement. "Nike is the most coveted brand in collegiate athletics and has a tremendous reach in the United States and world wide." <sportsonesource.com>


    Exclusive Star Trek Shoe Hits Payless Stores - The exclusive STPL x Airwalk Star Trek shoe is now arriving at Payless ShoeSource stores and payless.com. CBS Consumer Products tapped Jeff Staple to design the branded street-meets-skate shoe. The shoe, offered in three colors (red, blue and gold), is inspired by the Starship Enterprise crew's Starfleet uniforms in the classic TV series, as well as this summer's feature film. "The momentum for Star Trek only continues to grow during this banner year for the iconic brand," says Liz Kalodner, executive vice president and general manager of CBS Consumer Products. "A whole new generation of Star Trek fans can now show off hip, stylish fashions just in time for the holiday season." <licensemag.com>





    Dick's SG Names Chief Accounting Officer - Dick's Sporting Goods, Inc. said in a Securities & Exchange filing that effective Nov. 8, Joseph R. Oliver will assume the title of SVP, chief accounting officer and controller. Prior to this appointment, Oliver had been employed by the company as VP, controller and assistant secretary since February 2006, and as director of accounting of the company since May 2000. <sportsonesource.com>


    Walmart to Stay Open 24 Hours Thanksgiving Weekend - About 800 Walmart stores in the U.S. will be open 24 hours during Thanksgiving weekend. Black Friday sales will begin Nov. 27 at 5 a.m.

    The announcement from the retailer does not include most of its supercenters, which are already open 24 hours. Walmart has also re-addressed its store plans for entry, customer flow, checkout aisles and placement of big-ticket items. Last year, federal safety regulators cited the retailer for inadequate crowd control after the death of a temporary employee at a New York store. <licensemag.com>






    VFC: Eric Wiseman, President & CEO, sold 24,000 shares after exercising options to buy 24,000 shares for a net gain of $960k.


    CRI: Charles Whetzel, EVP, sold 20,000 shares after exercising options to buy 20,000 shares for a net gain of $420k. Transaction occurs amid an investigation of the corporation on behalf of the shareholders.


    FDO: Dorlisa Flur, EVP, sold 5,900 shares after exercising options to buy 6,600 shares for a net gain of $59k.


    FOSL: Alan Gold, Director, sold 6,800 shares after exercising options to buy 6,800 shares for a net gain of $149k.




    TIF: James Quinn, President, sold 25,000 shares after exercising options to buy 25,000 shares for a net gain of $38k.


    SWY: Kenneth Oder, Director, purchased 10,000 shares for a total cost of $230k.




The Macau Metro Monitor.  November 13th, 2009.




DM praises the job that Sheldon Adelson and his LVS executives have done in setting up the IPO of Sands China and raising US$1.45 billion in loan commitments to complete construction of Lots 5&6.  Compared to the situation LVS found itself in one year ago – staring down bankruptcy speculators – the company is in a strong position.  When Lots 5&6 comes online in mid-2011, Sands China will have the critical mass of hotel rooms needed to dominate every segment of the mass market from the cheap (Traders) to the mid-priced (Sheraton) to the luxury (Shangri-La). 


DM sees several bullish factors pertaining to the value of the company:

  • The Plaza is only just getting going
    • This is where the company will have a discernible advantage in the market for direct VIP players (2x as profitable as junket play)
    • The Venetian is putting Macau on the map  in new long-haul markets such as India and Japan, bringing in high-margin mass and premium-mass visitors
    • The Cotai Arena is booked solid for more than six months in advance and the MICE market is recovering and will be boosted by the completion of Lots 5&6
    • The company accounts for around 40% of Macau’s total EBITDA share and is best-placed to grow that share

While there is political risk, and the threat of lawsuits, DM believes that the IPO of Sands China will be a success.




Although cost estimates for Galaxy are now at HK$14 billion, up from HK$10 billion, DM points out that it is still HK$10 billion cheaper than City of Dreams and likely to generate similar revenues.  The stock has been downgraded recently due to the company not having enough money to finish what it has started.  


The company’s track record with StarWorld, and the ambition of the project on Cotai, demonstrates Galaxy’s ability to focus on ROI.  Over the past five quarters alone, it has earned enough EBITDA at StarWorld to pay the entire US$300 million it spent constructing the property three years ago.  Whereas junket play has been the lifeblood of StarWorld, on Cotai the company must make the leap to the mass and direct VIP play segments.  Galaxy needs a great property and marketing team to draw customers.  DM is convinced it has the former and that will provide a very attractive experience for punters.




RESORTSWORLD: ANOTHER HK DISNEY? destination-macau.com

ResortsWorld Sentosa, due to open in 2010, has been touted by many analysts as having the capability to carve out a big slice of the Asian gaming market.  The design of, and marketing behind, the resort is strong and observers are clearly impressed by the prospects of the resort.  However, DM believes that all of the marketing for RWS thus far has suggested that the company is not adept at the gaming business – certainly not in comparison to the people who will be running Marina Bay Sands, its future competitor.  If ResortsWorld Sentosa is planning on providing a theme park experience, DM points to the travails of Hong Kong Disneyland as a cautionary tale. Disneyland has been a flop in Hong Kong and Marina Bay Sands, although behind schedule, will have a far more powerful marketing machine than RWS.




LOW-COST TOURS ARE BACK destination-macau.com

DM believes that the restrictions placed on low-cost tour groups have been eased and that the next step is to end the ban on twin-city visas for individuals – which dried up ferry traffic for a while as IVS visitors couldn’t visit Macau via Hong Kong.  Traffic numbers in Macau have held up despite the recent tightening of visa restrictions by Guangdong.  However, the cooling of the credit markets by the People’s Bank of China could stymie the growth in Macau seen as more than two-thirds of its revenues comes from VIPs playing on credit from junket operators.

Say It Ain't So

“It ain’t what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so.”
-Mark Twain  
Mark Twain died in 1910, but my guess is he would have been a contrarian investor.  
I have been early on being the bearish one, but the facts have not changed to support a different conclusion so I’m sticking to my guns.  For the record, I was officially bearish when the S&P 500 was at 1066 and it closed yesterday at 1087. The issues that cause me to be cautious are TAIL related – 3 years or less – and on the margin things are slowing in my favor.  
The central thesis is not new, the Federal government’s attempts to sustain a $14 trillion economy cannot continue without implications on inflation and the dollar.  Inflation is on its way (Inflation Rotation) and the dollar is bottoming, or what we call the “Bombed Out Buck.”  Neither is good for equity prices.
Since 10/26 we have had multiple M&A transactions, a blow-out GDP number, and a number of MACRO data points in the US and China that are very supportive of the RECOVERY/REFLATION themes and still the market is up less than 2%.  Today we are waking up to some GDP numbers out of the Euro zone that are supportive of the global recovery theme and the futures are up small.
That could change at 10 am.  Today we are going to get the preliminary November University of Michigan confidence numbers.  The consensus is expecting a slight improvement to a 71.0 reading.  A slowing to below the prior reading of 70.6 is more likely.   
During my short tenure as being the bearish one, the dollar index has fallen to 75.60 from 76.13, and our TRADE line of support is 75.92. The dollar looks to be down again today despite some of the biggest emerging economies in the world trying to arrest the decline and President Obama’s shaking hands with the Client.  While the President is doing the right thing, there should have been a hand shake in the first 100 days.  Right now the Chinese don’t care!  
Under the surface of all the good news of a 3.5% GDP number and a 61% rally in the S&P 500 are the rumblings of uncertainty that are not being factored in.  Part of the “Bombed Out Buck” process is that there is “risk” in the system that is not being accounted for that will provide some support to the dollar.
Given where we came from relative to the 3Q08 “depression” scenario, the recently reported 3.5% 3Q09 GDP number is truly amazing and we have unprecedented federal deficits to thank.  If the 3Q GDP number was company earnings, the quality would be low and “the equity” would be a short.  The 3Q09 number included a 1.7% gain from the “cash for clunkers,” a 0.6% gain from the government throwing tax dollars at the real estate market and a 0.9% gain from a largely-involuntary inventory build-up.  All those “one-time” stimulus items represent 92% of the reported growth and it’s not sustainable.
On the margin, GDP looks to be slowing from here as the 4Q09 GDP estimate is now at 2.5% according to a Bloomberg survey.  Adjusting for “one-time” items in 4Q09, we are still in a recession. The money the government is spending on stimulus programs is borrowing from the future and not generating real growth.  
At Research Edge, we generally believe that the Healthcare reform madness will not happen.  And I would say with the S&P 500 at 1087, the market generally believes that it’s not going to happen either.  The uncertainty of how healthcare reform will impact consumer spending and corporate profitability is an unknown.    
Healthcare reform is a TAX on society that will require an adjustment period that will likely be a drag on consumer spending.  The increased TAX burden on small business owners is massive and creates uncertainty about profitability.  In fact, it could lead to further job losses as businesses adjust labor costs to maintain margins.  
For most small businesses, the number of employees required to be covered is unknown because the definition of “full-time, part-time and seasonal” employees would be left to a newly created “Health Benefits Advisory Council” who will figure it out at a later date. The uncertainty of the unprecedented employer mandate TAX would give small business owners no choice but to cut jobs, not create them.  
If health care reform passes, I could be out of a job as a restaurant analyst because nobody would want to own restaurant stocks. The current economic downturn did not weed out many of the marginal players in the industry, but Healthcare reform will!  This is not good!
Howard Penney

XE – CurrencyShares Euro TrustWe bought the Euro on 11/12 on a down move against our short position in the British Pound. A bullish formation in the Euro remains and we think the ECB could hike before the Fed does.

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.

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.  

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.

Research Edge Sees 30%-40% Upside for Motorola Shares


Great Canadian beats EBITDA expectations and blows away margins on better expense control.



"Our third quarter results provide further evidence of how our various expense reduction initiatives have created both a significant and sustainable improvement in the efficiency of our operations.  Our quarterly EBITDA and EBITDA as a percentage of revenues are both very impressive, despite continued revenue challenges.  I’m also pleased by our three major redevelopments, all of which reached their initial phases of completion on-time and on-budget."




  • EBITDA margins should improve even more when the economy begins to recover
  • River Rock's had a difficult hold comparison from 3Q08 (24.8%)
  • Slot handle was particularly weak at Boulevard and View Royal (despite the addition of new slots)
  • Initial Canada Line impact on River Rock appears positive - as seen by the sequentially better results from 2Q09
  • On Nov 19th GC will complete the remaining redevelopment at River Rock and should help revenues (atrium reopening, connecting sky bridge)
  • At View Royal they will increase their marketing so that people will be aware of the redevelopment and the new slot product
  • At Boulevard they will remodel the slot floor
  • Now that most of the cost control measures are complete they are beginning to focus on increasing revenues
  • While expenses will grow when revenues begin to increase they should still experience better flow through which will benefit EBITDA margins



  • Quite confident that a substantial part of their cost reductions are permanent in nature.  Think that the current cost structure is appropriate for the current revenue environment.  If revenues increase then costs will also increase, but margins will increase as well. If revenues get worse, they will look for more cuts
  • Too early to raise the margin guidance range of 29-34%
  • Why is the decline in slot handle worse at Boulevard vs River Rock?
    • Partly from Villa impact, partly from demographics near Boulevard (more "blue collar-ish" and more retirees)
    • River Rock has more high end play, Canada Line helped
  • Stupid question on mix impact from Canada Line
  • Have cost cuts impacted revenues at all?
    • No
  • #1 job next year is focusing on marketing
    • Expect positive ROI on marketing...doesn't everyone?
    • They are not increasing their marketing expenses - just trying to market smarter...glad he clarified, I was getting nervous
  • Excluding River Rock, there has been some drop off in visitation as well as spend per patron.  Hopefully that ongoing product refresh will help
  • Paid down the R/C to $22MM in October, expect that they will continue to delever through 4Q09 and should pay down R/C by Q12010.
  • Once they delever, what will they use cash for?
    • Biggest priority is keeping their eye on the ball and working on the newly opened expansions
    • Nice answer Milt... much better than restarting projects
  • Use of leased slots at Nova Scotia?
    • In BC the BCLC buys all the slots vs. in Nova Scotia they are responsible for slot capex
    • By leased they mean getting some hot participation titles (I guess they aren't familiar with those in Canada)
  • Why is McFadden complaining about deeper cost cuts? It's called guiding conservatively... That's how you get paid - set conservative expectations and beat them
  • Can they hit 40% margins if the revenue environment improves?
    • NC... just do the math....
  • Georgian Downs saw some good results for the first 2-3 weeks and since then has dropped off a little.  I guess we'll have to wait and see
  • Refresh and layout change?
    • River Rock will get some new slots - they haven't had any new product since 2004.  The refresh will take them to 1,000 from 850.  No real disruption
    • At Nova Scotia they increased theatre seating by 35%
  • Historically what has a slot refresh done for them?
    • They haven't done something on this scale before
    • I personally this is a stupid question - it makes your product more competitive and gets rid of the least productive product on your floor. Some of the stuff they are removing does as little as $50/day in win
  • Katz is asking if they are going to look at any distressed opportunities given their strong balance sheet....
    • If it's a great deal they would have to think about it.  Not out there looking to make an acquisition just for the sake of it
    • Haven't seen anything so far, but wouldn't say that the pickings are slim.  Can't name names - because if they signed a confidentiality agreement ... Sounds like they are looking at some stuff - I liked Milt's answer better
  • Until the skywalk is open they won't really know the full benefit of the Canada Line, since today you have to "jaywalk" to get to River Rock.   Marketing department is "working fervorishly" to tap that customer base
  • Maintenance capex is very low - $5MM or so plus $3MM left to spend at Georgian Downs
  • Deferred projects will remain deferred until they see the macro economy stop deteriorating, and while things aren't as bad as they were earlier, things haven't "stabilized" yet.  Likely that the deferred projects will stay deferred in 2010
  • Saw a very clear increase in slot coin in and visitation since the opening of the Canada Line which has been sustained through today

Footwear/Apparel Divergence Narrows

The divergence between apparel and footwear sales narrowed considerably this week as apparel rolled while footwear stabilized. The most notable change over last week is the trajectory in apparel, which posted its second consecutive decline in sales after 3-months of consistent growth. Buoyed recently by cold weather apparel, a closer look at recent weather trends reveals an unmistakable reversal in temperatures so far in November that has likely cooled demand. Meanwhile, athletic footwear trends are stabilizing (albeit still weak relative to other categories). Given relative price stability, the implication is that traffic is less bad mirroring what we’ve been hearing recently from retailers. However, it’s still apparent when taking the ICSC weekly retail sales into account that the sporting goods channel continues to underperform.



Footwear/Apparel Divergence Narrows - Footwear Apparel 11 09


Footwear/Apparel Divergence Narrows - Footwear Apparel ICSC 11 12 09



Footwear/Apparel Divergence Narrows - Weather 11 09


Footwear/Apparel Divergence Narrows - Weather 10 09

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