- 1) This is not a typical tighty-whity knock off product. It appears to target an 18-35-year old male willing to drop $12 on a pair of skivvies. This is right in line with CK Underwear's sweet spot.
- 2) Let's not underestimate the sheer size and marketing power of Levi's. This company is private, so naturally no one knows (or seems to care) how big it is. But at $4.4bn in revenue and a 15% operating margin, it is roughly the same size as Warnaco, Gildan and Hanesbrands combined. My point here is that its marketing budget is 1.5x Warnaco's total EBIT. If Levi's wants to take share - it will take share.
- 3) There's not that much share to go around. The chart to the right shows that 50% of the market is locked down by four brands. But when we take out lower priced basics, that concentration goes closer to 80%. That's where Levi's is headed.
Selling my gold in June was an unacceptable mistake. I am not in the business of making the same one twice. I am thankful to have been able to buy it back on a down move today.
*Full Disclosure: I own gold again (via GLD) in my personal fund.
(chart courtesy of stockcharts.com)
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First -Pricing: In January when Landmark Communications initially began shopping the deal, the asking price was $5B, by accepting 30% less than their original number, Landmark has made the same hard acknowledgement that hundreds of Manhattan apartment owners have had to in recent weeks - that no rich US market centric Wall Street buyers are likely to chase bids, anytime soon.
Second -Financing: Three of the four primary financing sources are related companies to the Buyers - Blackstone's GSO, Bain's Sankaty, and GE commercial finance, with deal advisor Deutsche Bank as the fourth. In this market the only people doing deals are those that can finance them themselves. They also set the price.
Third -Attrition: This acquisition is an acknowledgement that NBC Weather Plus has been a bust and that the network has failed in its attempt to organically grow a viable competitor to the Weather Channel. This is the start of an important cycle where large companies that tried to grow for growth's sake (at the top of an economic cycle) are being sent packing. Misallocating capital gets people fired.
If you subscribe to the thesis that the current market shares many similarities with the early 1970's then it might be interesting to recall that the only guys that were able to get deals done in the mid and late 70's were junk bond traders - not bankers or entrepreneurial visionaries. The next couple years may prove to be a less friendly environment than many younger Wall Street professionals fully anticipate.
Although the revolutionary icon becomes less relevant with each passing year, it's interesting to note that the bird's nest is the Symbol that was chosen to replace him.
There is obviously a huge amount of national pride and effort invested in preparing for the Olympics (from shutting down steel mills and factories, to cleaning the air, to reports of hundreds of babies named after the games). This underscores the potential fallout of any unexpected negative event. No one will know why China's stock market has been cut in half in the last 9 months, until we see the Olympic story unfold.
From a Global Macro Risk Management perspective, managing proactively toward possible tail risk is what we have a responsibility to do. We continue to have an eye on developing Chinese trends ahead of the critical August event.
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