Government officials suggested a trend whereby the big got bigger, the smaller have sought out niche markets, and the middle ranks have been going away. Yes, capacity is consolidating, and we'll see more. Bad, obviously, for most companies doing business with them.
Another telling statistic is that 1.35bn pairs were shipped in the first 5 months of the year - a decline of 15.5%. That said, export dollars actually rose 9.4%. This is especially significant in that the dollar value of shoes sourced in the Guangdong province account for about $10bn US. Even if I assume that only a third of these are destined for the US athletic market, it still represents about 2/3 of the market.
Ok, so let's get this straight. Half of the capacity in the most important region for global footwear production has gone bust, and there was a subsequent 2,600bp gap in unit production vs. price (in US$). This brings me back to one of the themes in the footwear space that I've outlined quite a bit (see all of my earlier industry postings) - investors are not cautious enough on margins in this space.
Exhibit courtesy of Hong Kong Trader
I've written extensively on the coming margin compression from room rate pressure so I won't rehash much here. See Mean Margin Reversion... posted on 6/22/08 and More Margin Context... also posted on 6/22. Suffice it to say that most of the big expansion in property level margins over the past 15 years was driven by room rate increases. The Las Vegas model aims to hold occupancies to drive casino visits. Not good for room rates and margins in this environment.
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While the stock is down -29% from that high, it continues to make lower highs on rallies, and lower lows on selloffs. If in fact the rumor mongers are right, and someone is looking to "take under" Lehman (LEH), Goldman would be on the short list of companies with the theoretical liquidity and currency to do so. If Goldman bids for Lehman, I want to be short GS.
I do not want to be naked long any brokerage stock. Long LEH, short GS (using a $176.86 stop loss).
(chart courtesy of stockcharts.com)
"Take Under"? C'mon guys... almost 15% of the float is held short at this point, and you're out there creating rumors like this on the last day of your month and quarter?
Do you really think this is going to happen tomorrow? I don't...
Strategists all over the US have been trying to catch a falling knife buying the brokers all year long. Consider this my 1st buy ticket, and foray into the abyss. Pray for me.
*Full Disclosure: I now own LEH in my fund, for a Trade at $20.33.
Management has yet to respond to our inquiry. Stay tuned.
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