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All Eyes on the Soy-mobile...

We are keeping our eye on Soy today as it trades up on a down day for rice, wheat and other softs in advance of tomorrow's quarterly report from the Department of Agriculture (particular our intern Karrin who runs her ancient Mercedes turbo diesel on soybean oil).

No real data in advance of the numbers although China's General Administration of Customs issued a trade surplus report today for the first half that showed the average import price for soy beans at an increase of 78.3% over the same period last year.

Andrew Barber
Director

MACAU VISA RESTRICTIONS SPUR PROMOTIONS

Apparently, Venetian Maca is running a promotion that offers a room, breakfast, lunch and dinner, and a roundtrip ferry ticket from Hong Kong for the very low price of MOP1,488 ($185 to you and me). That rate is a 1/3rd reduction from the opening special last year of MOP1,008. Promotions like this may be more common as mass market visitation has likely taken a hit from the new visa restrictions.
  • Venetian Macau may be reacting to the new visa restrictions put in place last week. As we discussed in our 7/5/08 posting, the Chinese government instituted new restrictions limiting mass market visitation to Macau from once a month to once every two months. Unfortunately, the restrictions were not well communicated to the mainland so many potential customers have been turned away at the border gates. My guys on the ground there tell me that traffic has slowed noticeably at a number of casinos. Discussions with operating level casino workers confirm their observations. Junket commissions and now promotions may continue to eat away at margins as operators battle for market share. It might be time to reset expectations.

You Can't Eat Aluminum!

Aluminum hit an all time high on $3,380 a ton on the LME this morning. As usual, the full details of the supply disruption in China took some time to emerge -in this case it has been smelters in Shanxi reined in by an overstretched power grid.

There have been a series of smelters idled by lack of power recently (particularly in South Africa) but this work halt is particularly emblematic of the global inflation dilemma -reports in the Chinese press indicated that power had to be diverted for agricultural production. You can't eat aluminum.

Andrew Barber
Director

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%

"Is Goldman In Charge?" - Episode 2: Hank Strikes Back!

Ron Paul: Who is charge of the U.S. dollar ?

Hank Paulson: We should give the government temporary emergency authority.... .

Do you recall in Star Wars Episode 2 When Senator Palpatine said the same thing to the Galactic Senate? Then he had sole authority, for which he subsequently used to take over the universe...

In Goldman do we trust? Ask the people living in the state of New Jersey what kind of a job the other recent ex-Goldman CEO, John Corzine, is doing...

Per the South Jersey News: "The Farleigh Dickinson University Public Mind poll found 40 percent approve of the governor's job performance, with 41 percent disapproving. That's down from a 44 percent approval in April and 48 percent in January."

*Full Disclosure: I am still short GS in my fund.
KM

Yo, Mr. Paulson - It's Ron Paul! "Who's In Charge?"

I am sitting here watching an entertaining session of Congress questioning our two compromised representatives of the US Dollar - Paulson and Bernanke.

While Ron Paul has been accused of having lost his marbles as I often have in the last 9 months, he asked THE QUESTION. "Who is in charge of the US Dollar"?

Of course Paulson's answer was fully loaded with both the stutter and lack of content as I am painfully getting used to hearing.

Paul's statement (within his question) included the lack of a US Savings Rate, negative real interest rates, re-regulation, and Federal Reserve inspired inflation.

Sometimes the guys who sound like they have a few screws loose, are the only guys with a screwdriver.

We fix this mess by raising interest rates.
KM

SBUX - Playing the Value Game

SBUX's Vice President of Customer Relationship Management Brad Stevens posted on the company's My Starbucks Idea website yesterday that a majority of the company's U.S. locations will be offering some sort of deal between now and early September. The promotions will vary by location but include among others reduced prices in the afternoon (with morning receipt) or free 12 oz. iced coffee on Wednesdays. Mr. Stevens said the company is responding to customers' request for everyday value, especially when money is tight.
  • These deals are being introduced to help stop declining traffic, which has been decelerating since 3Q06. In the most recently reported 2Q08, the company did not quantify the traffic decline, except to say that trends had significantly deteriorated from 1Q08's 3% decline.
  • Although I recognize that SBUX must take the necessary steps to improve its traffic trends, these new promotions bring us back to the traffic versus margin question. To that point, Mr. Stevens would not specify whether or how much the value offerings will impact SBUX's profits. Starbucks' FY07 U.S. operating margins were already down 90 basis points YOY and fell to 10% in 2Q08 so margins are already under pressure.
  • Additionally, despite Mr. Stevens saying in an interview the company has no plans to join the likes of McDonald's and Burger King by offering a dollar menu that could clash with Starbucks' luxury image, these types of promotions run the risk of changing the consumer's perception of the SBUX brand. Just as a company can alienate its customer base by abandoning its perceived value messaging, a company can also compromise its brand by trading its customers down as they begin to expect such promotions.

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