Consumer confidence bottomed in early 2009.  In early 2010, divergences in consumer confidence among income groups will be worth watching for restaurant investors.


The chart below clearly shows a split in consumer confidence between those earning salaries of $35,000 and over and those earning $34,999 and below.  Since October 2009, the wealthier segment of the population has seen a significant boost in confidence, while lower income levels have seen stagnating, or even deteriorating, levels of consumer confidence.


CONSUMER CONFIDENCE & EATING OUT - consumer confidence


Looking at quarterly comparable-store sales metrics for restaurants by average check, it is clear that trends have been improving in restaurants with average check of $45+.  The third calendar quarter has seen a slight tick up in trends for the $5-10 average check group.  It is worth noting, however, that some of the 4Q comparable sales numbers that have been released by companies whose average checks fall within $5-10 have been negative.  Carl’s Jr. has released comparable-store sales for two of the three periods of the fourth calendar quarter.  Thus far for the quarter, comparable-store sales have been approximately -8%.  In addition, Sonic’s comparable-store sales for the quarter ended November 30th (not included in the chart below) declined -9.1%.  We anticipate declines in the trends for these companies going forward, assuming the divergence in consumer confidence between income levels remains.


Between restaurants with average check between $10-20 and $20-27.50, it seems that the $20-27.50 average check group saw more stability in the last quarter than those restaurants with average check between $10-20.   At this point, it is difficult to draw a firm conclusion from the data available, but we will be paying close attention to the consumer confidence trends, comparable-store sales at various average check levels, and the relationship between the two metrics.




Below is a table indicating the companies whose data was included in the chart above:



Sovereign CDS Download

Sovereign CDS Download - cds29

Europeans Pointing Fingers

With the meeting of the World Economic Forum this week in Davos, we’re getting a host of interviews from the Who’s Who, including European policy makers that are asked to comment on Greece’s budget deficit issues. What’s clear from the interviews is that while by in large most of the European community has tried to calm fears of sovereign default in Greece’s debt—suggesting a close cooperation with Greek officials to cut spending and hone in on its budget deficit over the next three years - we’ve also seen officials (including those with important name tags on) put their foot in their mouth.  In particular, Monetary Affairs Commissioner Joaquin Almunia recently said” “Greece will not default. In the Euroarea, default doesn’t exist.”


As we’ve noted in our recent posts on Greece (see our portal), there’s plenty of evidence that sovereign default exists, and could be a reality for Greece. Further, we’d point you to “This Time is Different”, a book by Carmen Reinhard and Kenneth Rogoff that discusses sovereign default across nations over the last eight centuries. In short, Almunia’s statement seems fully absurd. 


The interviews have also demonstrated that European countries are quick to dismiss their own problems in favor of calling out their neighbors. The chart of Spanish unemployment is just one of the charts referenced to deflect attention. Today, Spain released its 4Q09 unemployment at 18.8% from 17.9% in the previous quarter, well above the Eurozone’s most recent reading of 10%.


Matthew Hedrick



Europeans Pointing Fingers - SP1


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Risk Management Time: SP500 Levels, Refreshed...

I shorted the SP500 (SPY) on this morning’s GDP report strength simply because this officially puts He Who Sees No Data (Bernanke) in a political box.


No matter what you think about the sustainability of a +5.7% GDP number, the immediate term reality is that it is unreasonable and unsustainable to maintain an “exceptional and extended emergency” Fed funds rate of ZERO percent. Particularly with year-over-year inflation now running up +3-4%.


The doves will say I am off base because “unemployment is at 10%”… I get it. That’s been the case the ‘zero is a perpetual investment return’ crowd has been making for months. Unfortunately (for them) both the currency and bond markets are telling the doves they are wrong.


I continue to think that bond yields continue to make a series of higher-lows (Rate Run-up) and that the Buck Breakout will continue as a leading indicator of the same.


This sea change in consensus expectations (Goldman’s Research Department says the Fed is on hold until they get their 2012 bonuses), is being reflected in a weak gold price (we are short GLD) and, finally, a TRADE and TREND breakdown in US Equities.


Below I have outlined TRADE and TREND lines for the SP500. The most important line is the thick red line of resistance at 1098. I might cover my SPY position on the way down to 1065. I might not. Unlike our politicized Fed Chairman, as the math changes, I will.



Keith R. McCullough
Chief Executive Officer


Risk Management Time: SP500 Levels, Refreshed...  - km3


R3: The Pause and Wait


January 29, 2009

January 2010 for most retailers is likely to be one of the least meaningful months in a while. With lean inventories going into and coming out of the holiday, a substantial year over year reduction in clearance activity (down 30-40% for most), and what appears to be a swift clean transition to Spring, there is little to glean from the biggest transition month of the year. Furthermore, many companies have updated earnings outlooks with the reporting of December sales.





January 2010 for most retailers is likely to be one of the least meaningful months in a while. With lean inventories going into and coming out of the holiday, a substantial year over year reduction in clearance activity (down 30-40% for most), and what appears to be a swift clean transition to Spring, there is little to glean from the biggest transition month of the year. Furthermore, many companies have updated earnings outlooks with the reporting of December sales.


Important or not, the trends over the past few weeks are still worth monitoring. Athletic apparel remains a relative outperformer, while it appears that athletic footwear may have slowed a bit. As highlighted last week, we expect pressure to continue near-term in footwear with the most challenging comps versus last over the next few weeks. Department stores are holding up slightly better post Christmas, most likely as a result of more clearance activity than we’ve seen vs. other channels. Overall, January likely represents a deceleration from December. There is not much to worry about given this slowdown however, except that it represents a pause in the positive trajectory that has been built since the Summer (see the ICSC chart below). We’re moving on, searching for early reads on Spring and marginal improvements in customer traffic. Inventories will still be managed tightly over the next few months, but whether the consumer shops more frequently is still unknown. Unfortunately, January is not likely to hold the answers…


R3: The Pause and Wait - 1


R3: The Pause and Wait - 2





  • Despite an image that is largely based on the original compression product, Under Armour’s CEO noted that the company now sells more “loose” product than anything else. The company continues to believe there are opportunities to expand across a wide range of fits-compression, fitted, semi-fitted, and loose.
  • American Apparel continues to push the envelope with its provocative marketing. The company is conducting an open casting call for the new “face” of the company’s expanding intimates and briefs lines. However, the term “face” must be examined closely. The search is actually looking for the “Best Bottom in the World”! Anyone interested is invited to submit their photos in online…
  • Stay tuned for the Fall launch of Columbia Sportswear’s latest technological innovation, Omni-Heat. The “warmth” technology will span over 100 products ranging from footwear to outerwear. The technology aims to “reflect” body heat, while eliminating the bulk of more traditional insulation. Management believes the technology may be a “game changer” and likened the launch to the time when Nike first introduced visible “air”. If true, this could be the beginning of a major turnaround…





A new technology that enables selling on Facebook is Off The Wall - Online marketing firm Resource Interactive has unveiled technology, dubbed Off The Wall, that lets retailers create a small but complete e-commerce experience on Facebook users’ “walls,” part of the pages on the social network. “The vast majority of activity on Facebook happens on users’ walls; they want to stay in the stream of things,” says Dan Shust, director of emerging media at Resource Interactive, which also builds Facebook pages for retailers. “If you have hot information, the best way to communicate on the social network is through the wall.” The firm tested the product in the days before Christmas with multichannel retailer The Limited. The merchant posted a scarf on its Facebook page, which has more than 20,000 fans, and offered 30% off and free shipping. Fans saw the promotion pop up in their news stream and could share it with their Facebook friends. The scarf sold out in a matter of days, the firm reports. Retailers can use the software to post a single product on Facebook fans’ walls. A Facebook user clicks on the image, which expands within the wall. Then the image displays information similar to that found on an e-commerce product page, such as product description and price, and offers options for selecting size and color. The user makes his selections, then clicks on a button to enter his shipping and payment information. He then clicks on a Buy button to complete the transaction.  <>


Lauder, P&G to Flex Marketing Muscle - Leading firms the Estée Lauder Cos. Inc. and Procter & Gamble Co. told analysts Thursday they will accelerate advertising spending in the second half of the year. Both companies were emboldened by stronger-than-expected second-quarter earnings. Lauder’s profit for the quarter ended Dec. 31 surged 62.2 percent to $256.2 million, or $1.28 a diluted share, from $158 million, or 80 cents, a year ago, beating analysts’ revised earnings expectations of $1.21 a share. Sales gained 10.8 percent to $2.26 billion from $2.04 billion, or 6 percent in local currency, beating Wall Street’s $2.24 billion consensus. P&G’s profits for the quarter ended Dec. 31 fell 6.9 percent to $4.66 billion, or $1.49 a diluted share, from $5 billion, or $1.58, a year ago, while sales rose 6.4 percent to $21.03 billion from $19.76 billion. Profits came in better than the $1.43 Wall Street expected, though sales were somewhat below the $21.07 billion anticipated. Lauder will spend $150 million to $175 million more than in the same year-ago period on marketing expenses, which include advertising, in-store merchandising and product sampling, said president and chief executive officer Fabrizio Freda.  <>


Versace Restructuring Plan Approved - Gian Giacomo Ferraris, chief executive officer of Gianni Versace SPA, said Thursday his extensive restructuring plan has been unanimously approved by the family, the shareholders, the banks and the unions. Ferraris also unveiled the launch of a new women’s diffusion line called Versace Collection for fall, which is forecast to achieve sales of more than 8 million euros, or $11 million, in the first season. The reorganization charted by Ferraris in October is aimed at returning the company to profitability in 2011 and includes cutting 350 jobs, or 25 percent of Versace’s worldwide workforce. The layoffs, which are primarily supported by government funds, begin in March and will be staggered through June. “The plan is based on a 360-degree reorganization and drastic internal measures but it guarantees Versace’s future and independence,” Ferraris contended during an interview at the company’s Via Gesù headquarters. The executive reiterated his priority to reverse last year’s operating loss of 30 million euros, or $41.8 million. He also confirmed 2010 sales will mirror last year’s revenues of 273 million euros, or $381 million.  <>


SKECHERS Donates $100,000 and Product to Haiti Earthquake Relief Efforts - SKECHERS USA, Inc., a global leader in the lifestyle footwear industry, today announced that the Company is donating $100,000 to Haiti earthquake relief efforts as well as 5,000 pairs of shoes to the people of Haiti. SKECHERS employees also are raising funds for various charities operating on relief efforts for victims of the tragic earthquake in Haiti. Specifically, SKECHERS donated $50,000 each to Doctors without Borders and Save the Children -- two charities deeply involved in delivering aid to the devastated nation. And the Company has also delivered 5,000 pairs of shoes to Soles 4 Souls, a charity that distributes new and lightly worn footwear to those who need it most.  <>


China Stresses Domestic Consumption at Davos - DAVOS, Switzerland — China will focus on boosting domestic demand to drive economic growth, Li Keqiang, vice premier of the powerful state council, said Thursday. “China’s domestic market has huge potential,” Li told business and political leaders at the annual World Economic Forum here. “We will strive to expand domestic demand, especially consumer demand.” Growing domestic demand has played “a critical role” in the quick economic rebound of the world’s biggest and most dynamic emerging market, he said. Total sales of consumer goods rose 15.5 percent last year, Li said, noting domestic demand helped make up for fewer exports and helped the economy to grow 8.7 percent. The International Monetary Fund this week estimated China’s economy would expand 10 percent this year. Turning to trade, the vice premier said imports totaled $1 trillion last year, making China the world’s second largest importer after the U.S. <>


British Retailers Complain Of Poor January Sales Due To Winter, Higher VAT - London, England, United Kingdom (AHN) - High-street retailers in the United Kingdom have complained of weak sales for the first month of 2010. They attributed the poor January sales to the winter and higher value added tax. The CBI's latest Distributive Trades Survey showed that 36 percent of retailers reported lower sales, while 28 percent logged bigger volume of sales for January 2010. The negative 8 percent balance between higher and lower sales volume was higher that the CBI's forecast in December that the balance would only be minus 2 percent. CBI is U.K's top business lobbying group. UK's harsh weather prevented consumers from going out and doing some shopping at a time when stores are offering hefty New Year discounts. For those who braved the cold climate, the bigger deterrent was the larger VAT, which went up to 17.5 percent beginning Jan. 1. Affected by the higher VAT were stores that carry big-ticket items like furniture and electronic goods. According to CBI Chairman Andy Clarke, the least affected by these two factors are groceries and shoe stores, but as a whole the retail was negatively affected. <>


Haitian Industry Coming Back Slowly - Apparel manufacturers in Haiti are rushing to get operating again in the face of significant challenges for workers and supply chains. The apparel industry in Haiti was a mainstay of the country’s economy, accounting for two-thirds of exports and nearly 10 percent of gross domestic product. As the country struggles to recover from the devastating Jan. 12 earthquake, the garment sector will be an important tool in helping it get back on its feet. Most factories operating in and around Port-au-Prince escaped the earthquake and its aftershocks with little damage, said Georges Sassine, president of the Association of Industries of Haiti, which represents the country’s manufacturers. He predicts apparel production will be fully back online by the end of February. However, the industry faces some daunting hurdles, including getting safety certifications for all factory buildings, even those without visible damage, so production can begin in earnest. Starting Thursday, engineers from the U.S. and France began visiting factories with Haiti’s Minister of Public Works to start the certification process, Sassine said. Prior to the quake, 28 apparel and textile companies operated in Haiti. They employed 28,000 workers at last count, Sassine said. In one of the largest tragedies caused by the earthquake, the Palm Apparel factory, which manufactured T-shirts for companies such as Gildan Activewear Inc., collapsed, killing an estimated 500 workers.  <>


Americans Agree: Quality Jobs Remain Hard to Find - As the Obama administration and Congress shift their focus to the economy and jobs after the State of the Union, Gallup polling suggests they need to consider quality as well as quantity. One in 10 Americans (9%) believe now is a "good time" to find a "quality job" -- a situation that has persisted over the past year, and a huge deterioration in job-market conditions from January 2007, when nearly half of Americans (48%) expressed optimism about finding a quality job.

R3: The Pause and Wait - G2

While Americans disagree about many things -- and rarely reflect an overwhelming consensus about anything concerning the economy -- their views about the lack of quality jobs are a clear exception; the total lack of optimism about the prospects of finding a quality job in January 2010 is consistent across ages, incomes, genders, and regions of the country.

R3: The Pause and Wait - G1



The Macau Metro Monitor. January 29th, 2010



Large construction projects such as the Zhuhai-Macau-Hong Kong bridge and the light railway, will contribute to Macau's economic growth in 2010 and help drive the unemployment rate to under 3%. “In 2010 the economy is expected to have positive growth, but there is some uncertainty in external terms and a threat of a second flu pandemic,” warned the Macau Monetary Authority's most recent report.



It appears that this week marked the conclusion of the Melco and AMA relationship and that the two parties are going their separate ways. It also seems that Melco has walked away unscathed from the breakup, with RC at Altira remaining healthy with a speculated turnover of MOP 23BN in January. The authorizes sited that the conclusion of agreement between MPEL and AMA came to a logical end as many of the original reasons for putting the deal in place no longer exist:

  • When Altira opened in 2007 they had no marketing plan and AMA did a great job of establishing Altira in the marketplace and was paid a commission for their efforts. Now Melco can take it from here
  • The deal gave Melco cashflow while it focused on building CoD. Now that CoD is open it doesn't make sense for Melco to pay a consolidator to bring customers to one property over the other
  • Melco helped Amax to raise HK$2BN from people on Wall Street in its back-door listing on the HKSE- money which was poured into credit lines for the sub-junkets and thereby guaranteed their business. Furthermore, Melcogave AMA faster-than-normal payment schedules, allowing them to use their credit better. But ultimately, this was all unsustainable. It was a wild, expensive grab for market share that temporarily disrupted the market. It had to unwind, and that was clearly the case over the course of 2009, especially as COD came online.

Now that the agreement is disolved, we'll have to wait and see if Altira can run a successful VIP business on its own. It will also be interesting to see how Lawrence Ho's supposed partner in this deal, Ng Wai, will continue to get compensated for his business . It's unclear whether he will move his junkers back to SJM properties, including his own Greek Mythology since he can no longer get paid 1.35% on the turnover at Altira.


TIME TO BUY MPEL Destination Macau

Gary Pinge from Macquarie is making a buy call on MPEL for 2 reasons: 1) Numbers are looking good due to the marketing zeal of Steve Webster positively affecting Mass and the IM team is holding their own in the VIP business, even at Altira. 2) "the price is right" given the recent hammering in the stock market.  There has also been chatter this week about Harrah's coming to buy out Crown's interest from the JV. The authors of DM dismiss the rumor as "nonsense" as Lawrence Ho doesn't need another foreign partner and has plenty of cash to buy out Packer is he really wants out.



DM dismisses the recent sell-side chatter of Macau's direct VIP business being bound to get hurt by the higher rebates that Singapore can offer players and the RWS has been poaching staff from Macau's International Marketing teams. Below are the rebuffs:

  • No one even knows what the direct VIP vs. junket VIP is exactly, since the government only cares about the entire number and how much taxes it will collect
  • While rebates may matter to junkets, it's unclear that they can even get licensed in Singapore. All high rollers care about is how well they get treated and how much credit they can get. A .2% difference in how many chips a player can buy only equates to one hand at the table
  • The loss of Mabel Lee (formerly at Wynn now at RWS) doesn't even matter. Mabel Lee previously helped Linda Chen at Wynn run the VIP business coming from Southeast Asia.  Channel checks at Wynn denied that Mabel was a significant loss, and in any case its unlikely that the loss of one person would bring down the world's most successful IM team
  • Genting is more likely to be like SJM than LVS. DM is unconvinced that they will be able to successful run a truly integrated resort. 
  • DM questions where the Chinese gamblers are going to come from.  So far RWS has not spent any money marketing in Macau, the largest place where Chinese really gamble.


January numbers are on track to beat MOP13BN, despite bank tightening. This is especially remarkable since Chinese New Years falls in February of this year vs. January of last year. Given the calendar shift, February results are likely to be huge as well. From all the accounts, hotels for CNY are fully booked.

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 80.43%
  • SHORT SIGNALS 78.35%