The Economic Data calendar for the week of the 30th of November through the 4th of December is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.
This is more of a reminder chart than anything else, but don’t forget that worries about global credit are not just Dubai based.
In the chart below, Matt Hedrick and Howard Penney have outlined the recent activity in Greek CDS – as in the credit default swaps (CDS) of a country (Greece). The Greek stock market was down -7% last week for reasons that are not new this morning.
Issues with credit default swaps are also glaring in Japan. This has been one of the major reasons why we have remained short the Japanese stock market. When a country’s currency appreciates like Japan’s has (hitting 14-year highs today), it puts tremendous pressure on DEBTORS.
Again, this Aiful news out of Japan is not new, but maybe it matters more in concert when considered with Greece and Dubai. Japan’s 2nd largest consumer lender by assets, Aiful, is having major issues with their CDS. We are also seeing CDS issues related to Thomson (levered European media company) and Cemex (levered Mexican materials company).
Aiful – as in awful. That’s what a world addicted to debt gets – new spellings for new paradigms of globally interconnected risk.
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On Bloomberg this morning, Lord and Taylor’s CEO said they took a contrarian approach towards Black Friday and the forward season by adding more inventory while competitors continue to cut and limit inventory. Like these guys or not, this actually makes a lot of sense to me. Mark my words, come 1Q, we’ll see our fair share of companies blaming weak sales on inventory limitations. Perhaps the perennially-underperforming L&T is left out of the mix this time around. The SIGMA set-up below is pretty astounding. The sales/inventory spread has gone vertical. A play on higher inventory is a binary outcome from here. GMROI will be feast or famine.
He also said November comps were trending as well as October comps as they expect low double digit comps like in October.
The 2010 Sneaker Setup Continues…
We continue to see athletic footwear trend up on the margin, reversing a 3Q trend where apparel dominated. Remember that athletic shoes has been one of the few categories that grossly underperformed in 2009. As each week passes we gain confidence in our call that 2010 will mark the year that this turns. Good for FL, FINL, NKE, KSWS and UA. On the flip side, the apparel trends – particularly as it relates to cold-weather apparel sales – are not looking good. Here’s a bit of trivia for you. How many coats are sold in the US every year? It’s about 300mm. Get the pattern? Roughly 1 coat per person. Yeah, I know… some people buy 5 coats, while other use hand-me-downs for the better part of their lives. But overall, we’re talking a 1 to 1 relationship. This season started with penned-up demand, as well as very cold weather. Now demand is easing, and the temp has risen. I originally thought the weak comp guidance thrown out there by guys like DKS for 4Q was simply conservative. Now it’s looking realistic (bad for DKS, COLM and VFC). Again…the play here is toward those who have more exposure to footwear.
IGT’s overreliance on “Wheel” games presents a big risk in the face of a now wide open playing field. Indeed, BYI is positioning itself to flood the market with its own Wheel products.
“The internet, that thing still around?” – Homer Simpson
While not quite having the global impact of the internet, “Wheel of Fortune” is by far the most successful casino gaming machine ever produced. It’s been around for so long and production has been so stable that it’s almost an afterthought; its dominance has been unchallenged. That is, until now. We think IGT’s reliance, or should we say overreliance, on the Wheel is disconcerting and underappreciated in the investment community.
Wheel games comprise approximately 35% of IGT’s total participation installed base, or around 21,500 of 61,400 games. Moreover, Wheels perform above the average IGT participation game. We estimate Wheel games alone will contribute 30% and 50% of company-wide revenues and operating income, respectively, in F2009. Let me say that again: one line of products provides 50% of IGT’s operating income. Astonishing.
On October 22 of this year, a court ruling essentially invalidated the “wheel patents” that had protected IGT’s Wheel of Fortune from competition. Competitors are now free to introduce their own wheel games. BYI will no doubt take the lead here. Indeed, the company introduced a bevy of new wheel games at G2E and plans to “flood the market” with wheel products. Hey, we are focused on reaccelerating replacement demand and new markets too, but this issue is too important to ignore.
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