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RL: A Huge Beat HAS TO Happen

RL: A Huge Beat HAS TO Happen


Tomorrow’s print should show that RL will earn ’11 EPS a year early. The sentiment suggests that the market knows this. But RL remains in bullish TRADE and TREND with upside to $86.11... not a short yet per KM’s risk management models.


It’s been a while since my confidence on a name has been so birfurcated heading into an event as I am with RL’s 3Q (Dec) EPS.  On one hand, RL will absolutely blow away the number tomorrow. We’re modeling $1.28 vs. the Street at a buck. Similarly, our 4Q estimate is $0.96 vs the Street at $0.79.  Top line is turning on the margin (helped in part by newly consolidated Asia business), both revenue and margin compares are increasingly easy, and capital intensity is easing. When all is said and done, RL should earn the Mar’11 Street estimate a full year early and make people look to $5.50-$5.75 in EPS power in Mar ’11.


So what’s not to like about that? Hardly anything. In fact, RL is one of the poster children for a company that invested in its P&L and balance sheet over the past two years when the world was falling apart. Yes, it took it on the chin with margins, but now will enter harvesting mode and show outsized growth in revs, earnings, cash flow and returns.


With names like this, we’re increasingly not valuation-centric. Why? They DESERVE to be expensive. A global brand name with a bullet-proof balance sheet and a proven track record for executing a simultaneous top and bottom line-driven mid-teens EBIT growth rate and 20%+ RNOA?


What do you pay for that? History shows us that RL is a typical ‘feast or famine’ apparel company in that when times are tough it is valued as a lowly apparel brand, but when it is beating expectations it is quickly valued as a luxury brand. Today we’re looking at the latter. If I take my estimate – which is a moonshot above the consensus, it suggests about 17-18x p/e, or about 15x on March ’11 numbers. This also equates to about 8x an above consensus number 2-years out.


Is this justifyable? I think so. But with more Buy ratings than anytime since June 2007 (8 Buys, 6 Holds, 0 Sells), short interest resting at the lowest level since Dec/07 and having just come down precipitously over the past six months (now at 6%), and with management as net sellers above $80, it’s pretty darn tough for me to justify adding to any position here. Even though we’re expecting a monsterous beat, we’d like to see it be a more controversial one to play on the long side.


But before getting cute on the short side, keep in mind that the positive fundamentals will be there, and Keith’s models suggest that RL remains in bullish TRADE and TREND with upside to $86.11.


-Brian McGough



RL: A Huge Beat HAS TO Happen - rl1


RL: A Huge Beat HAS TO Happen - rl2


RL: A Huge Beat HAS TO Happen - rl3




For the intermediate term TREND (3 months), we are bullish on the jobs picture, but we need to get past Friday first.  The upcoming revision to the official number of those unemployed and non-farm payroll data create a political football that the Obama administration does not need right now.


The economic downturn has been the deepest of the post-World War II era.  Generally speaking, the post-war environment has been one of growth, with most government reporting structured on an underlying assumption of ongoing economic growth, not the “Great Recession.” 


The stress of the extreme economic downturn is creating problems with the government reporting system. Those problems include:


(1)    The lack of reporting data due to companies going out of business.

(2)    An economic decline so severe it’s affecting normal seasonal variation patterns. 

(3)    One-in-three home sales is a foreclosure sale.

(4)    The federal government taking effective control of auto makers, banks and insurance companies.


The likelihood that traditional economic models will produce an accurate picture of current economic activity has deteriorated.


This will become more evident this Friday.  In more “normal” times, payrolls not reported by companies because they have gone out of business are more than offset by jobs created by start-up companies.  The excess jobs creation from start-ups is an estimate from five years of historical data, which includes “normal” periods of economic growth.   The economic climate of 2008 and 2009 has changed the payroll reporting dynamic.  As a result, the BLS will publish next week a downward revision to May 2009’s previously reported payroll level of about 800,000 or more.   That means the official number of unemployed since the start of the recession will be bumped up from the current 7.6 million to 8.4 million people.


If the traditional BLS (government) quote is understating the severity of the Job picture, what is the chance that the government is overstating the strength in the economy?  I would say strong.  I said last week that most people believe that the initial estimate of GDP is the most heavily rigged and politicized data point put out by the government.  With the GDP figure coming on the heels of the State of the Union speech it was certainly a welcome headline, but negative for the market. 


The better than expected GDP number was dollar bullish which is a negative for the REFLATION trade; the S&P 500 closed down 0.98% on the day.  We are agnostic to this Friday’s jobs data.  An improving unemployment picture puts upward pressure on interest rates and is dollar bullish, bearish for the market.  A bad jobs number is a political nightmare for the Obama administration, which is also dollar bullish and a nightmare for the market.      


Howard Penney

Managing Director




R3: Opening up the Debate on URBN


February 2, 2009


Our internal process at Hedgeye is one that openly encourages debate and discussion and occasionally we share these exchanges… here’s our take on URBN.





Our internal process at Hedgeye is one that openly encourages debate and discussion and occasionally we share these exchanges.  When our views align, our hit ratio goes up… Here’s our take on URBN.  The bottom line is that this is one of the few growth stories left in specialty retail, which also has near-term momentum resulting from a consistently improving topline and very easy margin compares.  Recall that URBN’s weakness last year came a bit later the most of the sector, which leaves topline comparisons fairly easy through the Summer.


Keith: URBN looks ripe to short.


McGough: Ditto that. This thing is more loved than almost anything in high-beta retail. 31 analysts with not a single Sell rating. Short interest is about 8.5% -- half of where it was 6 months ago. Let’s dig on the fundamentals.


Levine:  First, let’s look at the near-term catalysts- 

  • Earnings reported 3/5/10.  The company already reported 2-month holiday sales, which were better than expected on a company-wide basis at 9%.  The Urban brand was weaker while Anthropologie was better.  Direct was very strong, adding about 300 bps to the total comp (pos for margins).
  • CFO is retiring, with transition complete by June/July. Historically, the CFO has been the key line of communication with the Street.  Often times, his body language has been helpful in gaining color on business trends.  His departure is a game changer for all those trading “data points” on the name.

Unlike most other specialty concepts, URBN’s topline compares here are actually easing post 4Q and remain easy through July.  Nov/Dec ’09  recorded a solid 9% comp increase.  Two-year was flat with 3Q.  Keeping the two year constant implies an acceleration to low to mid teens run rate in 1H10.  Even if the year doesn’t hold steady for the next 2-3 qtrs, sales should still accelerate and leverage on expenses should be attainable at a flat to slightly positive run-rate.


In looking at the margins, compares are easiest in current qtr (4Q09).  Even in the absence of an earnings update with holiday sales, the model suggests that there should be upside when results are officially reported.  Swift clearance and inventory management LY, leaves compares easiest for an additional qtr (Q1).   The back half of the year poses considerable margin challenges.  2009 should end the year about 200 bps off of peak and 300 bps shy of managements goals, for a 17% EBIT margin.  Hard to envision measurable improvement without a sustained topline pickup for full year 2010.


Finally,  inventory was managed well heading into holiday and comps suggest they come out clean as well.  Recall that URBN is still a growth company, adding about 10-12% square footage a year.  You will not see substantial cash flow harvesting here, given the focus on growth and reinvestment in new concepts.  With that said, I don’t see additional cash flow drivers on the cost side.  The upside potential comes mainly from closing the 200bps gap to historical peak EBIT, driven by a sustained mid single digit comp increase and some margin benefit from private brand/sourcing.


Team Conclusion: A review of the model suggests it might be too early too short, especially into earnings on Mar 5th.  We are currently comparing against the sweet spot of compares for URBN and the two-year comp run rate has proven to be stable over the past 6 months.  This alone suggests some further upside into Spring…


R3: Opening up the Debate on URBN - urbn




  • For those on the cutting edge of fashion, keep an eye out for the latest trend which marries luxury with rub-on tattoos. Chanel is launching a line of temporary tattoos in advance of its Spring Paris runway show. The tattoos are expected to come in 55 different designs at a price of $75 each. We wonder if this is a cheap way to “wear” Chanel or an extremely expensive way to sport a fake tattoo? It will be interesting to see how long it takes for bubblegum wrapper tattoos to also become a fashion statement.
  • It’s been a very busy week for Ron Burkle and his investment arm, Yucaipa. First, rumors have been circulating that Burkle is interested in acquiring Barneys NY, adding to his retail holdings which include boutique retailer Scoop and Sean John. Second, the media is reporting that Burkle is interested in acquiring the Pittsburgh Pirates along with Mario Lemieux (they already own the Penguins). Finally, after the close on Monday a letter to the Barnes & Noble board was released in a filing, in which Yucaipa asks for approval to acquire up 37% of the shares (Burkle currently owns about 19%). If we’ve missed anything else, let us know…
  • With Valentine’s Day falling on a Sunday this year, there are some winners and losers. On the positive side, restaurants are expected to benefit because traffic is likely to build over the course of the weekend. On the negative side, the timing couldn’t be worse for florists. Most are closed on Sundays and leaving many to miss out on last minute purchases. Overall, total Valentine’s Day spending is expected to increase by 3.3% this year, according to IBISWorld. An while Valentine’s Day may seem like a frivolous holiday to some, it is expected to generate $17.6 billion in sales this year.




Amazon agrees to a publisher’s demand that it raise e-book prices - Amazon.com says it will give in to Macmillan Publishers Ltd.’s demand that it raise prices for electronic versions of Macmillan books. The decision, which comes after Amazon temporarily stopped selling Macmillan’s books, is the latest example of major publishers and web retailers jockeying for position in the fast-growing e-book arena.

Amazon generally charges $9.99 for e-book versions of new books and best sellers that can be read on Amazon’s Kindle e-book reader. The low prices mean the world’s largest online retailer often takes a loss on e-books; observers say Amazon wants to keep e-book prices low to generate demand for its Kindle reader and to extend its lead among e-book reader suppliers and, more importantly, as the leading web retailer of electronic content. Late last week, however, Macmillan demanded—and Amazon accepted on Sunday—the retailer raise its prices to between $12.99 and $14.99 for new releases, with other titles costing between $5.99 and $14.99. Amazon will earn 30% of the sale price. Macmillan says the new price model will begin in March.  <internetretailer.com>


JJB Sports Chairman Steps Down - JJB Sports, the struggling U.K. sporting goods chain, said David Jones, chairman and architect of its rescue, is stepping down to continue his long-running battle against Parkinson's Disease. The news came as JJB, which saw suppliers hold back shipments as the chain incurred liquidity issues last year, posted further falls in sales and gross margins, albeit at a slower rate. The firm said on Thursday that Jones, a former chief executive of fashion retailer Next who has suffered from the debilitating neurodegenerative disease since 1982, will step down as chairman on January 31 but will remain a non-executive director. Last year, as JJB teetered on the brink of administration, Jones steered the firm through the 83 million pounds ($131.8 million) sale of its fitness clubs, a debt restructuring with creditors and a 100 million pound ($160 million) capital raising. John Clare, the former CEO of electrics retailer DSG International and JJB's senior independent director, will be acting chairman until a permanent appointment is made. Last month, JJB said DSG's retail director, Keith Jones, will be its new CEO but he does not start until March 1. JJB said sales at stores open over a year fell 21% in the three weeks to January 24, taking the cumulative fall for the 52 weeks to January 24 to 37%. Total sales slumped 51%. <sportsonesource.com>


The Finish Line Adds Board Member - The Finish Line appointed Mark Landau to its board of directors. Landau is the managing director and a member of the investment committee at Goldenbridge Advisors in New York. Prior to joining Goldenbridge, Landau was with Merrill Lynch for 14 years, serving in a variety of management positions including his most recent post as managing director, senior relationship manager, investment banking, financial sponsors and hedge fund coverage. For 10 years prior, Landau served as managing director, senior relationship manager, investment banking and real estate. He also created the European real estate investment banking group for Merrill Lynch. <sportsonesource.com>


Wolverine® Receives Eleventh Consecutive Plus Award Win - Wolverine steps into the New Year marking an unprecedented eleven-year tenure as the pinnacle of work footwear brands. The brand will be recognized this week with its eleventh Plus Award win for excellence in design in the work footwear category. “Retailers nationwide have spoken once again, as no other brand has won a Plus Award every year since the industry accolades debuted in 1998”. “Retailers nationwide have spoken once again, as no other brand has won a Plus Award every year since the industry accolades debuted in 1998,” stated Greg Dutter, editorial director of Footwear Plus magazine. “In a category that truly demands design excellence in order to get the various jobs done, Wolverine has proven its work boots do just that.” Footwear Plus conducts its Plus Awards annually, surveying thousands of footwear retailers nationwide and honoring overall design excellence in more than 20 categories. “Working men and women have been the backbone of the Wolverine brand for more than 125 years. The drive to design authentic and supremely comfortable work footwear remains an important part of our business,” said Ted Gedra, President of the Wolverine Footwear Group. “We are honored and thankful that our retail partners and colleagues continually recognize the Wolverine brand as an industry leader.”  <businesswire.com>


New Look Plans to Raise 650 Million Pounds in IPO to Cut Debt - New Look Group Plc, the U.K. women’s fashion retailer controlled by buyout firms Permira Advisers LLP and Apax Partners Worldwide LLP, plans to raise 650 million pounds ($1 billion) by selling stock in an initial public offering to cut debt and fund expansion. The owners may also sell some of their shares in the IPO, the company said in a statement today. The stock will be listed on the London Stock Exchange. Private-equity firms are taking advantage of last year’s decade-high returns in European stock markets to sell assets and return cash to their backers. New Look, taken private in 2004, is returning to the market after adding stores and plans to continue expanding its U.K. and international selling space. “New Look has doubled its space since 2004 and the group continues to perform strongly,” Chairman John Gildersleeve said in the statement.  <bloomberg.com>


ShopNBC hires another executive from competing TV and web retailer QVC - ShopNBC, which has been overhauling its senior management for the past year and a half, has again recruited a top executive from competing TV and web retailer QVC Inc. ShopNBC has named as its new president Bob Ayd, who had been executive vice president and chief merchandising officer at QVC. Ayd will report to CEO Keith Stewart, who joined ShopNBC in August 2008, also from QVC.  <internetretailer.com>


Kicking Into High Gear: FN Platform  - A joint venture between MAGIC and Footwear News — will include more than 500 brands spanning roughly 60,000 square feet of exhibition space at the Las Vegas Convention Center. The dedicated footwear show, running concurrently with the MAGIC marketplace Feb. 16 to 18, will be divided into five distinctly themed sections to service different categories of the shoe market. “Each of the areas of the show has its own neighborhood and is anchored by its own lounge,” said MAGIC president Chris DeMoulin. The Cosmo women’s section will include brands such as Aquatalia by Marvin K., Stuart Weitzman, Steve Madden and Ralph Lauren. Camp features fashion athletic and lifestyle merchandise like Sperry Top-Sider, Auri, Palladium and G.H. Bass & Co. Bond showcases men’s dress brands such as Donald J Pliner, Mezlan, Bacco Bucci and Cole Haan. Comfort brands in the Zen area will include Easy Spirit, Naturalizer and Aetrex. Finally, InPlay features juniors’ and kids’ labels like Stride Rite, Poetic License, Lelli Kelly and XOXO. An additional 200 shoe brands will be exhibited elsewhere in the MAGIC family of shows, but DeMoulin said eventually they would likely move into FN Platform. <wwd.com>


Shaking Things Up: MAGIC Shows Get New Layout - This season, MAGIC is raising the curtain on its two-campus layout for the Feb. 16 to 18 program. The men’s wear venue, setting up shop in The Mandalay Bay Convention Center, comprises MAGIC Menswear, Project, Premium, Street and S.L.A.T.E., a venue dedicated to an edited mix of street, surf and skate brands. An expanded WWD MAGIC will constitute the women’s wear arena at the central hall of the Las Vegas Convention Center, which also will house the Pool Trade Show, Sourcing at MAGIC and the premiere of the footwear expo FN Platform.  <wwd.com>


Obama Budget Gives and Takes From Industry - President Obama proposed more money for trade enforcement and export promotion but called for the elimination of a program for wool manufacturers in the $3.83 trillion federal budget he submitted to Congress on Monday. Obama decreased the outlay for the office of the U.S. Trade Representative, which is responsible for negotiating foreign trade pacts, by $1 million to $48 million. “This budget reflects this administration’s commitment to a leaner fiscal outlook,” USTR Ron Kirk said. “But this budget still invests in sustained efforts to enforce Americans’ trade rights around the world and to enhance economic opportunity here at home.” The Commerce Department’s Import Administration, which monitors textiles and apparel and investigates antidumping and countervailing duty trade cases, received an additional $4 million to $73 million. The International Trade Administration said its outlay rose about 20 percent to $534.3 million to help the agency with efforts to promote exports.  <wwd.com>


WSA Seminar to Focus on Threat Posed by New California Labeling Law - A new California law that could expose footwear manufacturers to expensive lawsuits will be the subject of a seminar at Wednesday's World Shoes & Accessories (WSA) Show. Interek and the American Apparel & Footwear Association (AAFA) have teamed up to comprehensively address how the California-based labeling law is now surprisingly affecting the footwear industry. Late last year, environmental groups targeted footwear brands and retailers for presence of potentially harmful chemicals, such as chromium VI, lead, cadmium and phthalates, through California’s Proposition 65. The new law mandates that products sold in California containing one of over 800 listed chemicals require a warning label noting that the chemicals in these products may cause cancer, birth defects or reproductive harm unless products meet state-defined limits. Footwear sold that lacks printed warnings are subject to legal proceedings by any citizen enforcer, non-profit group or individual that alleges a violation. These agencies and individuals can issue a 60-day notice stating intent to initiate a lawsuit – under which the law covers all legal fees and awards plaintiffs with up to a third of the settlement.  <sportsonesource.com>


Gallup Economic Weekly: Confidence Falls in Late January - Job-market conditions remained anemic while spending bounced back to last year’s new normal. Gallup's Economic Confidence Index was unchanged last week at -28 -- essentially the same as the prior two weeks' readings, and down from the optimism of a month ago (-20). Job-market conditions remained anemic and self-reported consumer spending improved slightly to match last year's new normal.

R3: Opening up the Debate on URBN - G1

What Happened (Week Ending Jan. 31)

  • Economic Confidence was unchanged last week, as Gallup's Economic Confidence Index stood at -28 -- virtually the same as it has been over the prior two weeks (-28 and -29). Forty-six percent of Americans rated the economy "poor" and 10% rated it "excellent" or "good." Thirty-seven percent said the economy is "getting better" while 57% said it is "getting worse." Although economic confidence has been flat over the past three weeks, it is down from a month ago, when post-holiday confidence matched its highest level of the past two years (-20). Even so, economic confidence is much better now than it was at this time a year ago (-58).
  • Job Creation deteriorated slightly last week, as Gallup's Job Creation Index worsened to -1 from 0 the prior week. Twenty-three percent of employees reported that their companies are hiring and 24% said their employers are letting people go. While current job-market conditions remain bleak compared to those of two years ago as the recession got underway (37% hiring and 15% letting go), they are better than what Gallup measured a year ago (21% hiring and 27% letting go).
  • Consumer Spending bounced back somewhat last week from the prior week, when spending was at its lowest weekly average since Gallup began daily measurement in January 2008. Self-reported daily spending in stores, restaurants, gas stations, and online averaged $60 per day -- up 15% from the prior week and up 5% from the same week a year ago. Consumer spending this year has modestly exceeded that of a year ago during three of the past four weeks. As a result, January 2010 spending ($62 per day) essentially matched that of January 2009 ($64 per day) -- suggesting a continuation of what turned out to be a "new normal" for spending during most of last year. Consumer spending during this same week in 2008 was much higher, averaging $104 per day.

R3: Opening up the Debate on URBN - G2


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Another quarter, another miss. However, January was very strong for the market and MPEL gained share. Catalysts are lined up for February as well. Here is our transcript:




“I am encouraged by our initial results so far this year, and I am confident that 2010 will be a strong year for us.”

- Lawrence Ho

Highlights from the Earnings Release

  • "In the fourth quarter, we successfully transitioned Altira Macau into a more traditional business model where we engage gaming promoters direct and not through an aggregator. This structural shift was precipitated by the introduction of the commission cap legislation in Macau on December 1, and although this legislation is a clear positive for us and the Macau gaming market, it also resulted in a temporary disruption in rolling chip volumes at Altira Macau during the reporting quarter."
  • “I am pleased to report that gaming volume has bounced back in January at Altira Macau to approximately 30 billion MOP for the month which, combined with reduced junket commission rates, is driving much improved profitability at Altira Macau. Additionally, our efforts to accelerate growth in our mass market business at City of Dreams have gained traction over the past two months. Bolstered by a moderate benefit from high rolling chip hold percentage in the past four weeks, our market share in gross gaming revenue terms has improved and our total EBITDA in January 2010 is estimated to be in excess of US$40 million."



  • Market share rebounded in Jan to 16%
  • Managing Altira in new commission environment and growing the Mass market business have been the two main areas of focus this quarter
  • Altira situation: Once the commission caps came in place, it was no longer possible to overpay for AMA. This served as a catalyst to sign direct agreements with all 12 junkets that formerly operated under the AMA umbrella.  Generated $10MM of EBITDA in Jan
  • City of Dreams hold reached almost 18% this quarter.  Generated over $30MM of EBITDA in Jan
  • Full complement of rooms at Hyatt weren't available until end of 09
  • Reconfigured the casino floor at CoD which has yielded benefits 
  • First phase marketing campaign was centered around awareness and the second phase is centered around conversion.  Will convert the second floor to have more entertainment options (Club/etc)
  • 2.85% hold would have meant $58MM of EBITDA
  • First covenant test is at the 9/30/2010. They intend to refinance the bank facility sometime in the 1H2010 ahead of the test date (which they acknowledge will be an issue given the weak current quarter)
  • Will not consider equity now
  • 1Q2010: D&A: $75MM, Net Interest expense: $20MM, Pre-opening expense: $5MM related solo to the Dragone production which will open in 6 months


  • Doesn't think that there will be any restrictive policies implemented by the government
  • Hold at Altira was normal and hold at CoD was a little high (by $5MM if you use theo) in Jan
  • Hyatt is now fully open. House of Dancing Water show, Kids Zone (chinese NY), nightclub (Q3), retail (will double from current)... will be the "destination of entertainment in Macau" by 3Q09. 
  • Regarding apartments, they will monitor what their neighbors are doing
  • Oct-Nov was flat for Mass volumes at CoD, and saw a 14% uplift in Dec bringing drop to $150MM. Saw another step up (11%) in Jan to $170MM in Mass drop, and hold has been improving as well. Running at MOP45MM drop per day at CoD
  • Combination of relay of computer floor, new marketing campaign, and full opening of Hyatt
  • Paying junkets at Altira 1.25% or rev share of 44%. They have 17 junkets in total - always had 5 junkets operating outside of Altira
  • Experience of refinancing debt: looking for a tranched facility with 5-8 year term to be completed by 2Q2010
  • Working capital for junkets at Altira?
    • They extended WC support to the junkets that were previously supported by AMA, they extended HK$525MM.  Now have market receiveables of $300MM.  Less chip liability its really $120MM ($20MM with direct, rest is their exposure to junkets).  1.25x monthly commissions at CoD and 1.5x at Altira which they believe is at the low end of WC provided to junkets in Macau
  • What % of commissions are fixed at 1.25% (% of rolling) vs. 44% share (% of revenues)?
    • 70% is as a % of RC (1.25% fixed) and 30% is revenue share and roughly 30% of the total business there is what they consider "direct" (which I suppose is in house junkets not true direct VIP)
  • Shareholder loan repayable mid 2010, would that be extended
    • Yes they will continue to roll it
  • Singapore exposure - direct & non-direct play from SE Asia
    • Think that impact will be minimal- especially from Mass & Chinese VIP. Only impact is "SE Asia" direct play- which shouldn't be material
  • CoD has about 20% of its VIP business done "direct"
    • I came up with a similar number (unlike last quarter where we differed on the calculation)
  • Comment on Harrah's rumors
    • "Total nonsense"
  • RC hold by property?
    • Was about identically low at both properties
  • Who lost substantial market share in Jan?
    • I guess its can only be WYNN or MGM bc we heard that Galaxy had very good growth (through the 3rd week of Jan)
  • Thoughts on costs of new R/C?
    • Current cost is $20MM/ Quarter (including the hedging cost). New facility will have bank debt and a high yield component. Goal is to keep the interest cost flat, given how low the current rates are
  • What happens to the cost base at CoD once the show opens? any cost cutting plans to offset that?
    • Will add about $100k/day of costs but they will be offset by ticket sales (think it will be a wash) but that the property will generate incremental visitation
  • Is this the new marketing campaign that they will have going forward?
    • Moved from a strategic position to tactical position focused on gaming growth.  Towards the last Q of 2010 they will likely adjust the marketing to include entertainment positioning in addition to continued gaming focus
  • Roll at CoD in Jan: 28BN  and 30BN at Altira
  • Why the big cash reduction sequentially?
    • Construction payables reductions ($120MM) and WC (CoD also experienced an increase WC as it grows $20MM or so from Q3 to Q4)
  • Altira - 80% at 1.25% and rest is rev share (has been stable for a long time)
  • Grand towers - 90% occupancy of which 90% is VIP.  Hard Rock - 97% occupancy of which 50% is Mass casino driven rest is retail. Hyatt: still ramping but in Jan 70% occupancy where about 50% are absorbed by casino programs, rest is retail
  • CoD database projectory has doubled to roughly 200,000
  • China's credit tightening measures and how it impacts them?
    • Will likely affect Chinese property market, and have a delayed impact on consumer demand. However, its unclear that it will impact them
  • Is there a reason why they hold low?
    • Atlira has held LTD at 2.7%
    • CoD has held at 2.8%
    • Some of the hold differences between properties can be due to accounting difference
    • There is nothing structurally wrong with their properties
  • CoD 2nd floor reconfiguration?
    • Can't announce them yet.  Several venues will be funded by their various entertainment partners (club style and extension of hardrock cafe)
  • Commission cap changes are not a catalyst for rapid share shifts between properties
  • AMA transition is done so whatever you see in Dec 31 balance sheet wise won't really change in March





Revisionist Research

“If we knew what we were doing, it wouldn’t be called research, would it?”

-Albert Einstein


After listening to Larry Kudlow cajole Hank Paulson last night, I thanked my lucky stars that men of this intellect and foresight were watching over my family between 2003 and 2007. On behalf of all Americans, I suppose they want me to thank them for saving our lives from the crisis they perpetuated.


I guess Kudlow is so caught up in running for the Republican party that he forgets demanding Bernanke provide what he called “shock and awe” liquidity to the system on all stock market down days. At the same time the ex- Goldman CEO reminds us that he “never second guessed my partners at the Fed.”


Kudlow called Paulson’s self serving Revisionist Research a “brilliant account” of saving us from their own compensation depression. They reminisced about Paulson’s Christian Scientist leanings and Kudlow’s prior addictions being saved by prayers to God. The whole thing was just scary, as Perceived Wisdom, combined with abused political and media power, usually is.


Turning the page back to reality this morning, the Chinese obviously watched that interview and had to wonder what in God’s good name they are doing betting the ranch of their currency reserves on a politically and religiously loaded American fraternity of conflicted interests.


Chinese stocks sold off again overnight, leading most of Asia to close lower, despite the CNBC oriented market cheering that’s always met with an American market up day. The Chinese don’t get paid to be willfully blind. Nor do they see any long term risk management in “never second guessing” the thought processes of two highly politicized men like Bernanke and Greenspan.


China, India, and Australia have an explicitly different view on monetary policy than America, Britain, and Japan. This is new. While 74% of “economists” thought the Reserve Bank of Australia’s Glenn Stevens was going to raise rates again overnight, he didn’t. That’s the point. He doesn’t have a Wall Street or a Washington consensus to pander to.


Countries that are leaning toward the once stated independent Federal Reserve policy (1980s, under Paul Volcker) of fighting inflation and asset price speculation continue to do just that, irrespective of being concerned with what their stock markets might do on any given minute, week, or month.


Australia has already raised rates 3-times in the last 3 months. China and India have both tightened bank reserve requirements, and raised short term lending rates. In the US, rather than manage risk like this proactively, we subscribe to reactive management, setting rate policy based on the blowings of the political wind. That’s what I have been referring to as the Bubble in US Politics.


Can you imagine Michael Bloomberg stepping up this morning and suggesting that New York City’s property prices are speculative? Could you ever imagine any American politician saying anything of the like, ever?


On Monday morning, the Mayor of Shanghai called property prices “too high.” This is AFTER property stocks in China have been getting hammered for the last 6 months. This isn’t about propping up a CNBC market quote folks. This is about learning from research associated with American asset price bubbles.


The China Banking Regulatory Commission warned lenders last night, again, about “hot money” in the property market. These guys are being both consistent in their message and vigilant in their execution of it. This isn’t leftist political rhetoric. This is called meaning what you say.


Now our call for Q1 has been that the Chinese Ox will be in a Box, so this is fine relative to the positioning of our intermediate term investment call. But please, please, do not mistake this for our grandstanding and making this a crash call. That’s what the fire engine chasers are doing AFTER the property bubble in China has already popped.


The Chinese property component of the Shanghai Composite Index closed down another 1% overnight, taking the overall Shanghai stock market index to down -10.5% for the YTD. After the fact, former Morgan Stanley research analyst, Andy Xie, is making headlines saying that the “property bubble is set to burst.”


Now don’t get me wrong, Xie does some great research. He’s by no means a consensus monkey. But calling for something to crash, after it has been crashing is probably a little bit more about selling research than making a long term call from here that you can make money on.


On January 10th, China’s State Council guided to explicit guidelines on property lending. Chinese lenders have to abide by a minimum 40% down-payment for 2nd mortgages, and price home loans 10% above the benchmark lending rate of 5.3%. Sound like an “easy money” bubble economy to you?


If you missed seeing this coming, that’s fine. But please don’t let a man purporting to be a researcher tell you that it’s either new this morning or that it wasn’t foreseeable. That’s what Larry Kudlow and Hank Paulson are telling you about 2008, rather than reminding you of all that they said and did between 2003 and 2007. History doesn’t start on the date they decide.


My immediate term support and resistance levels for the SP500 are now 1062 and 1098, respectively.


Best of luck out there today,





XLV – SPDR Healthcare — We bought back our bullish intermediate term view on Healthcare on 1/22/10.


XLK – SPDR Technology — We bought back Tech after a healthy 2-day pullback on 1/7/10.


UUP – PowerShares US Dollar Index Fund — We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).


EWG - iShares Germany —Buying back the bullish intermediate term TREND thesis Matt Hedrick maintains on Germany. We are short Russia and, from a European exposure perspective, like being long the lower beta DAX against the higher beta RTSI as well.  

EWZ - iShares Brazil — As Greece and Dubai were blowing up, we took our Asset Allocation on International Equities to zero.  On 12/8/09 we started buying back exposure via our favorite country, Brazil, with the etf trading down on the day. We remain bullish on Brazil's commodity complex and believe the country's management of its interest rate policy has promoted stimulus.

CYB - WisdomTree Dreyfus Chinese Yuan — The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP - iShares TIPS — The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.



UNG – United States Natural Gas Fund Macro DJ (Daryl Jones) and I remain bearish on Commodities. Natural Gas had a healthy price pop on 2/1/10, prompting us to short it. 


XLE – SPDR Energy The Energy ETF was up +1.7% on 1/29/10 and we remain bearish on both oil and commodity prices for the intermediate term. Shorting green.


SPY – SPDR S&P 500 The SP500 broke our intermediate term TREND line earlier this week and remains broken. The 4Q09 GDP report confirms that Bernanke has to raise interest rates. ZERO is not a perpetual policy unless the USA wants to become Japan. We shorted SPY on 1/29/10.


GLD – SPDR Gold SharesWe re-shorted Gold on a bounce on 1/25/10. We remain bullish on the US Dollar and bearish on the intermediate term TREND for the gold price as a result.


IEF – iShares 7-10 Year TreasuryOne of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.
RSX – Market Vectors Russia
We shorted Russia on 12/18/09 after a terrible unemployment report and an intermediate term TREND view of oil’s price that’s bearish. Russia’s GDP fell 7.9% in 2009.


EWJ - iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.


The Macau Metro Monitor.  February 2nd, 2010.





Macau’s trade deficit widened to MOP 2.94 billion in December from MOP 2.78 billion in November, according to the Statistics and Census Service.  One year ago, the trade deficit was MOP 2.36 billion.  Exports from Macau dropped 25.5% year-over-year to MOP 680 million in December.  Imports’ value increased 10.6% year-over-year to MOP 3.62 billion in December. 



Casino gross receipts in January exceeded MOP 13.3 billion (US$ 1.67 billion), according to The Macau Post Daily.  The revenues beat the previous monthly record of MOP 12.6 billion (US$ 1.58 billion)  in October last year.  Compared with the casino sector's gross receipts of MOP 8.6 billion in January 2009, last month receipts were up around 55 percent.  SJM took market share of 30%, with Sands China taking 22% of revenues in January.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.