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ARO: Reading the REAL Release

Amidst the sea of sales and earnings releases, how can we not take note of one of the most bizarre sales releases (blunders) in a long time?  This morning at 8AM, Aeropostale (ARO ) mistakenly issued last year’s January sales release.  Based on this, it appeared that ARO once again blew out expectations, with another double-digit comp increase. About an hour later, a revised press release arrived and the REAL results indicated a less impressive 6% same store sales gain, in-line with expectations.  Both releases also noted earnings revisions to the upside, which only added to the confusion. Tack on an oddly timed 3 for 2 stock split along with the official word that the co-CEO’s take the helm next week, and ARO remsins one of our top short ideas.  For an outline of the broader thesis, take a look at our 1/29 note Revisiting a Crowded Debate.


-Eric Levine

Same Store Sales: (Little) January Looking Good

Even with concern about lack of clearance merchandise, Jan was one of the more unanimously positive months we’ve seen in a while.  While we don’t want to get carried away with a month that only accounts for 7% of annual sales, the sequential acceleration across durations can’t be ignored.



The early read this morning on January sales is positive with results largely in-line to better than expectations.  Even with the month being of least importance in the grand scheme of things, there were notable earnings revisions to the upside coming from M, PLCE, GPS, ARO, AEO, ARO, KSS, SSI, and TJX.   Companies that outperformed during the Dec/Nov period appear have maintained momentum (even with tight inventory levels) while the underperformers continued to lag.


On the surface, results out of COST were better than expectations but below the surface there were some key moving parts.  Positive contribution from gas and FX helped to offset a negative 150-200bps hit from the calendar shift of the Super Bowl into February. BJ noted about the same 200bps negative impact from the Super Bowl. Unseasonably cold weather in the southwest was also cited as a headwind during the month.


Perhaps most interesting was a comment out of COST regarding food inflation/deflation. January marked a substantial change in the deflationary trend with the impact now measured at less than 1%.  This marks a substantial change from the mid-single digit deflation that has been impacting the food and consumables category for the past several months.


In a sign that sales day continues to diminish in its level of importance, another company (PLCE) announced that it’s going to discontinue reporting monthly sales – At least they’re going out with a bang, with a significant beat again this month on both sales and earnings.


January Recap:


Upside to expectations & guidance: M, PLCE, GPS, AEO, ARO, KSS, ROST, TJX, SSI

Upside to expectations: COST, ANF, DDS, LTD, ZUMZ, BJ, JWN, SKS

In-line: WTSLA, TGT, JCP

Downside to expectations: BKE, CATO

Downside to expectations & guidance: FRED, HOTT


Same Store Sales: (Little) January Looking Good - Total SSS


Same Store Sales: (Little) January Looking Good - 1yr SSS


Same Store Sales: (Little) January Looking Good - 2 yr SSS


Eric Levine



At first glance, Q4 looked amazing and full year 2010 guidance was solid. No complaints on RevPAR but digging a little deeper we found that things weren’t as good as they appear.  



By our math, the “clean” EPS number for the quarter was $0.25 (using a “normalized tax rate” and excluding all charges and a fully diluted share count).  However, even the "clean" number contained $21MM of what we believe are mostly termination fees.  Normally “termination and other fees” run at around $11MM per quarter.  If we adjust out for abnormally high termination fees, we get “normalized" EPS of $0.21, which was in line with our original estimate and the Street.  Beating on termination fees is not exactly encouraging.  Even so, there were a lot of positive things to point to in this quarter's results


Here are some additional and, we hope, unique thoughts: 

  • For anyone wondering where the upside to guidance came from, we have an answer for you – it's call SFAS 167.  If you recall, on the last call HOT explained that the new accounting rules would benefit their 2010 EBITDA to the tune of $10 to $15MM.  Well, now that number is $40 to $45MM and it's all accounting - no associated “cash flow” with this raise.  The Street’s 2010 EBITDA estimate was $730MM so if you add the extra $30MM the number goes to $760MM, actually ABOVE the new guidance of $750 million.
    • “This new accounting rule impacts the accounting for securitized vacation ownership loans. As a result of the adoption of this rule, the Company expects its reported assets (accounts receivable and other assets) to increase by approximately $400 million and its reported liabilities (short-term and long-term debt) to increase by $445 million, prior to any tax effects. Also as a result of the accounting change, vacation ownership pretax earnings for 2010 are expected to increase by approximately $20 million to $23 million and EBITDA is expected to increase by approximately $40 million to $45 million. The new accounting rule is not expected to have any impact on the Company’s cash flow.”
  • It also becomes clear that 1Q2010’s EBITDA guidance was also inflated by roughly $8MM, so again a bigger guide down versus the Street than meets the eye
  • We understand why HOT is adding back the $17MM of cost of sales price discount adjustments to get to “Adjusted EBITDA”, but to be fair, wouldn’t you also take out the $23MM of gains on securitization then? Same goes for adding back $2MM of D&A on discontinued operations.
  • HOT is excluding all the Bliss associated expenses - which were all in SG&A while Bliss revenues were in Management fees & other.  We wrote about the Bliss sale on Nov 2, 2009 “HOT: A BLISSFUL EXIT” and on Jan 11,2010 in “HOT: 4Q IN REVIEW”.  However, we wrongly assumed that Bliss expenses and revenues wouldn’t come out until 2010. 
  • 2010 & Q1 RevPAR guidance was actually quite good, no doubt aided by HOT's international exposure



Cliff notes:

  • RevPAR was better than expected, especially international.  Occupancy led the way
  • F&B revenues declined only 9-10% … a nice sequential improvement
  • Management & fees where low quality with higher than normal termination fees doubling from prior quarters
  • Timeshare income was better due to the higher than previously reported gain


  • Owned, Leased and Consolidated JV revenues and EBITDA cleanly beat our estimates
    • International RevPAR was much better than we estimated, to the tune of 5.5%.
    • North American RevPAR came in 1.7% better than our estimate
    • We suspect the vast majority of the beat here came better F&B and other revenues, which we suspect declined less than 10% in the Q vs. out -20% estimate
    • Total costs per occupied room decreased 2.3% (estimated 6.8% in local currency) 
  • Management fees were messy since Bliss was excluded
    • Base fees were in line, just $1MM less than our estimate
    • Incentive fees were $3MM better than our estimate, declining 19%
    • Franchise fees were $1MM better than our estimate
    • “Other Management & Franchise Revenues” came in $12MM higher than our estimate, due to what we believe were higher termination fees.  The $42MM included $21MM of deferred amortization of gains (like every quarter), the balance is usually mostly termination fees. 
    • Bliss was excluded
    • So base, incentive and franchise fees decreased 9.7% compared to guidance of down 8-10%
  • Timeshare beat due to a $23MM gain on securitization, strange because when the announced the deal the gain was stated at $15MM… hmmm anyone else confused here?
    • Originations were better than we estimated though but margins were lower, probably due to discounting of inventory

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R3: Look at AmEx, not Just SSS


February 4, 2009


Let’s not overlook perhaps the most notable datapoint over the past day – which is from AmEx. Non discretionary spending is widening its gap versus discretionary. This plays into our view that even with ‘easy compares’ we need to look at share of wallet more than anything else, and that 2010 should be a difficult delta for discretionary categories.





While everyone is pouring over same store sales data this morning, let’s not overlook perhaps the most notable datapoint – which is from American Express. Note that spending is up year/year to no surprise, but non discretionary spending is widening its gap versus discretionary. This plays into our view that even with ‘easy compares’ we need to look at share of wallet more than anything else, and that 2010 should be a difficult delta for discretionary categories.


R3: Look at AmEx, not Just SSS - 1




  • With the American Living brand about to hit its two year anniversary, Ralph Lauren President Roger Farrah had some comments about the brand’s challenges and success so far. He noted that the launch of the brand came at a difficult time in the market overall, making it even more difficult to launch the premium priced line. The biggest learning was the delta between where the line was priced and what the customer was willing to pay for a brand with no history or heritage. The JC Penney customer was also not as receptive to the color palette of the line. Both pricing and colors have now been corrected for Spring and Fall ‘10. Granted, no CEO in this business ever says “we adjusted colors and pricing so that we still have it wrong in the upcoming season.”
  • Wolverine World Wide management expects product costs out of Asia (China) to remain favorable through the first half of 2010, with an uptick coming in the second half of the year. Management also noted that it is not entirely clear at this point how much costs will be up, but that in a few weeks after the Chinese New Year is complete the outlook will be much more clear. The company did not elaborate – but we think that this is a function of VAT and import/export duties, which are unlikely to change before the New Year.
  • It’s game on for American Eagle Outfitters and Hollister in Soho. It appears that AEO is moving its downtown flagship on Broadway in Soho, to a newer 20,000 square foot location just a few blocks north. Interestingly, the store will be situated directly across the street from ANF’s first Hollister flagship. Teen tourists are rejoicing all over at the prospect of one-stop shopping…


MORNING NEWS  (and Hedgeye Retail’s 2 Cents)


Karkus Exits Under Armour - Under Armour Inc. said Wednesday that Suzanne Karkus, senior vice president of apparel, has resigned to pursue other interests. The company has named Matthew Mirchin, senior vice president of sales for North America, interim head of its North American wholesale apparel unit while it searches for Karkus’ successor. In a regulatory filing with the Securities and Exchange Commission, the Baltimore-based performance apparel firm said that following Karkus’ departure on Feb. 16, she would be paid six months’ salary, or $200,000 based on her 2008 compensation, pursuant to the employment agreement inked when she joined the firm in January 2008. That contract called for her to receive a half year’s pay in the event her employment was terminated “under certain circumstances.” The company has yet to provide salary information for 2009. Karkus will also receive $120,000 “primarily to cover her transition and other expenses.” Prior to joining Under Armour, Karkus was president of Izod Womenswear for four years and, during a six-year tenure with Calvin Klein Jeanswear, advanced to president of its women’s division. While Under Armour has struggled with its fledgling investment in footwear, the apparel business has continued to flourish. In the fourth quarter ended Dec. 31, apparel revenues increased 26 percent to $192.1 million, 86.5 percent of the corporate total. By contrast, footwear revenues, while up 60.6 percent for the full year, fell 5.1 percent to $8.7 million in the quarter. Calls seeking comment from Under Armour weren’t returned. The firm’s stock dropped 3.4 percent to $25.88 in trading Wednesday. <wwd.com>

Hedgeye’s 2 Cents: When the SVP in charge of 90% of the P&L either resigns or is forced out, it’s never a great sign. Granted, when Raphael Peck – former head of footwear – resigned last year, it was a precursor to Kevin Plank bringing on Gene McCarthy, who we think was the best free agent in footwear. Our sense is that McCarthy and Karkus were not exactly the best of friends. We’d expect to see a high profile hire here quite soon.


Jones Buys Robert Rodriguez Collection - Jones Apparel Group Inc. is continuing to expand its portfolio in the contemporary category. After buying a 50 percent stake in Rachel Roy in 2008, the apparel conglomerate has acquired Moda Nicola International LLC, which owns the Robert Rodriguez Collection. Jones’ plan is to help the Los Angeles-based designer of women’s contemporary sportswear and eveningwear and his business partner and chief executive officer, Nicola Guarna, grow the label deeper in its existing 600 doors, which include Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue, Nordstrom, Harrods and Holt Renfrew. According to Jones, the deal is valued at about $28 million, with Jones having made “initial cash payments to the selling members of MNI,” who are to receive future cash payments “upon achievement of certain financial targets set within the agreement.” Last year, MNI generated net revenues of about $17 million. <wwd.com>

Hedgeye’s 2 Cents: Is it me, or is JNY getting back to its old destructive roots a bit too quickly?


Wal-Mart Cutting 300 Headquarters Jobs - Wal-Mart Stores Inc. said Wednesday it will eliminate about 300 jobs at its Bentonville, Ark., corporate headquarters as part of a strategy to improve efficiency and cut costs. The latest move comes after the retailer last week said it will break up Wal-Mart U.S. into three geographical regions, create a new merchandising execution organization, change the way products are sourced globally, close 10 Sam’s Club stores in the U.S. and lay off 11,000 employees. The positions at Wal-Mart’s headquarters are primarily in corporate support areas, said Mike Duke, president and chief executive officer. In a memo to employees, Duke said asking the home office to make staff reductions was only fair in light of the push for operations to become leaner and more customer-focused.  <wwd.com>

Hedgeye’s 2 Cents: Non-event.


Adidas America Announces Restructuring - Adidas America Inc. on Wednesday said it laid off a small number of employees as part of a U.S. restructuring at its Portland headquarters but indicated that it still expects to see job growth in the U.S. this year. The company issued the following statement, "Today adidas America, Inc. announced a restructuring of its organization in support of the launch of a new US business plan. This action will result in a net increase to employee headcount at the company's Portland, Oregon headquarters. The purpose of this restructuring is to simplify the business, increase efficiency, prioritize resources and position the company for long-term growth and opportunity. While the company is ultimately creating more jobs, many of the new positions demand a different skill set and experience level, thereby requiring the company to release some employees and recruit new talent. Although these decisions are very difficult, the company is making the strategic moves necessary in order to not only maintain but increase market position." Adidas America spokeswoman Stephanie Von Allmen, speaking to Oregonlive.com, declined to divulge the specific number of job cuts, but said it would be fewer than the 60 jobs that will be added during the course of 2010. She said the company would release further details of the restructuring at a later date. The company employs 800 at its U.S. headquarters in North Portland. <sportsonesource.com>

Hedgeye’s 2 Cents: I think I’m pretty good at math, know this industry quite well, and have a decent enough memory. But if you were to ask me how many times the North America ops at Adidas has been restructured, I’d need to research it a solid half hour before giving an accurate answer.



CAA Among Investors That Buy J Brand Firm - Fashion’s Hollywood connection just got a little bit closer. J Brand’s rapid rise to prominence in the premium denim segment is getting an additional boost from a new private equity owner that includes an unlikely partner: none other than the powerhouse Creative Artists Agency. Star Avenue Capital LLC has acquired a majority interest in Los Angeles-based J Brand in a deal said to be valued in excess of $50 million. Star Avenue was established in early 2009 as a three-way partnership between Star’s management, private equity firm Irving Place Capital — a key investor in operations such as Aéropostale, Seven For All Mankind, Stuart Weitzman and The Vitamin Shoppe — and CAA to target emerging brands and concepts for investment. It’s the first major investment for Star Avenue. As part of the deal, J Brand will welcome as chairman former Jones Apparel Group Inc. chief executive officer Peter Boneparth, who joined Irving Place Capital in March as a senior adviser focusing on the retail and apparel sectors. “Premium denim was a category that we targeted early on as one that would be an obvious deal given our experience from Irving Place, and given how these brands respond so well to media activation,” Mark Genender, managing director of Star Avenue, told WWD exclusively. <wwd.com>

Hedgeye’s 2 Cents: Banker Bonanza redux.


Cutter & Buck gets new CEO - Seattle sportswear company Cutter & Buck has named Jens Petersson chief executive officer, replacing Ernie Johnson. Seattle sportswear company Cutter & Buck has named Jens Petersson chief executive officer. He replaces Ernie Johnson, who took the helm in 2006, a year before Cutter & Buck signed a deal to be bought by European apparel distributor New Wave Group. Johnson, a former banker, now is chairman of Cutter & Buck's board of directors. Petersson, 46, who previously was deputy CEO of New Wave, said he plans to step up Cutter & Buck's marketing efforts and better communicate with customers on the Internet. Social-networking Web sites such as Facebook are "very much on my agenda," he said, citing the U.S. economy as another top concern. "We hope we've seen the bottom and a recovery is coming as soon as possible." Something else he hopes will blow over soon: the Tiger Woods sex scandal. Cutter & Buck specializes in golf apparel, and Woods' absence from the game "obviously is not a positive," Petersson said. "What's best for all of us in the industry is he comes back and plays." <seattletimes.nwsource.com>

Hedgeye’s 2 Cents: An often overlooked gem in golf apparel – seriously.


Esprit Plans China Online Sales as Retailer Expands - Esprit Holdings Ltd., the biggest Hong Kong-listed clothier, may set up an online sales network in China as it pushes expansion in the world’s most populous nation, where it says margins are similar to those in Europe. Chinese spending on casual clothing is growing and Esprit is likely to see a “stronger influence from China” in future fashion collections, Chief Executive Officer Ronald van der Vis, who took over in November, said in an interview.   <bloomberg.com>

Hedgeye’s 2 Cents: Important move. US investors don’t know Esprit, but they should.


Burberry Promotes Janowski - Burberry has named Andy Janowski to the newly created post of chief operations officer, reflecting the brand’s increased focus on its supply chain. Janowski joined Burberry in 2006 as senior vice president, supply chain, and created a global team that transformed purchasing, manufacturing, sourcing and shipping, resulting in cost savings and reduced environmental impact and distribution processes, Burberry said. Burberry’s wholesale sales in the third quarter grew 10.5 percent, due partly to earlier, more streamlined shipments and an ongoing strategy to deliver new ranges more frequently to customers. “In his three-and-a-half years with the company, Andy has strategically built, modernized and shaped a leading, world-class supply chain team,” said chief executive officer Angela Ahrendts. <wwd.com>

Hedgeye’s 2 Cents: “Increased focus on supply chain”? That was the buzzword catchphrase a few years ago (like 10). A bit late to the party boys.


PENN missed the Street but hit our EBITDA estimate on the nose. Wish we could same about Q1 and 2010 guidance.



We don't have a lot to add to the earnings release.  The takeaway is clear:  2010 is not off to a good start in the regional markets and the recovery duration looks farther down the road.  PENN provided 2010 guidance well below us and the Street consensus, particularly for Q1.  EBITDA and EPS guidance for Q1 was 17% and 39% below the Street, respectively.  Full year 2010 guidance was better, falling "only" 11% and 26%, respectively, under the Street.  However, visibility on gaming revenues is always limited so back end loaded guidance never gives us much comfort. 


At least three legs of PENN long thesis remain:  solid management, a deep long-term development pipeline, and a balance sheet to fund it.  Unfortunately, the significantly lower estimates probably mitigate the "cheap stock" fourth leg of the thesis.

Back To The Future

The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved."
While our Confucius (Keith) is on T.V. this morning, I’ve been handed the pen on the Early Look. The real Confucius is, of course, the ancient Chinese philosopher whose writings have influenced China in varying degrees for the last 2,000 plus years.  They espouse a practicality and logic that can be transferred readily to many types of societies.  The quote above suggests that the superior man, or government, will proactively plan for the future.  In money management, we call that a Risk Manager.  These are typically the guys or gals with long careers.
The United States continues to be the global leader in GDP market share, but its share has consistently eroded over the past ~35+ years.  Based on current and projected GDP growth rates, and GDP growth capacity of nations, it will not be long before China surpasses the United States.  While this may be shocking to some, the reality is that this is really Back to the Economic Future in terms of economic market share as China had a larger economy than the United States for most of the 1800s.
Many astute short sellers are incredibly bearish on the prospects for China.  Jim Chanos, an investor who we hold in regard for more than the fact the he roomed with current Yale Hockey Coach Keith Allain in college, is at the top of that list.  Having never spoken to Jim about China specifically, what I can surmise from reports is that his thesis is primarily based on the inaccuracy of government data (“they make it up”) and that there is serious risk to the banking system in China due to writing a lot of bad loans.
Even if Jim is correct, we would be remiss to believe that China’s GDP market share gains will slow for the longer term.  As Kenneth Rogoff and Carmen Reinhart write in their must read book, This Time Is Different:
“China’s four large state owned banks, with 68% of banking system assets, were deemed insolvent.  Banking system nonperforming loans were estimated at 50%.”  
They were referring to the epic bank failures in China in the late 1990s.  When 68% of your banking system is insolvent, it can’t get much worse.  But guess what happened over the ensuing decade? China recovered and continued to take massive GDP market share. This centralized communist government led the nation back from the financial abyss.
While our financial crisis is largely behind us, the reality remains in the United States: healthcare needs reforming, the longer term impact of entitlements needs to be addressed, mounting national debt issue needs to be resolved, and our financial system needs better regulation.  Absent a permanent super majority in congress, which seems unlikely to happen, the only way anything will be accomplished is if the parties work together in the spirit of a true constitutional democracy.
For that to occur, it will require a willingness of whomever the President is at the time to reach across party lines and work with his or her political opponents.  The four issues outlined above need solutions and if they aren’t addressed the longer term outlook for investment in the United States and in United States government debt (especially at current prices) is a lot less compelling than other nations.
With the startling victory by Scott Brown in Massachusetts, one would hope that that both the President and the Democrats realize that while they have the power, they need to respect the middle and independents it they have any hope to effectively govern and solve any of the major problems facing the nation.  
We have been writing to our subscriber base that we expect to see a shift in politics in the coming years.  A shift to more independents and independent candidates, as the electorate continues to lose faith in the partisan political system.  A recently poll from Rasmussen suggested that Americans unaffiliated with either party is now at 32.3%.  
The immediate term market reaction to this shift in the character of political and government leadership is a continued Buck Breakout. This morning the U.S. dollar is breaking to 5-month highs based on recent political events and the anticipation of continued change.  This change will come in the form of politicians whose core qualification for being elected is not already having been a Washington Weasel (an elected politician).
Our current political system is beholden to the attempts of both parties to implement a tyranny of the majority.  In the Federalist Papers, Publius defined the tyranny of the majority aptly:
“. . . a number of citizens who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community."
This quote embodies our current age of politics.  Yesterday, President Obama was out pumping that this remains, “the second largest Democrat majority in a generation.”  While this is factually correct, that emphasis is not exactly what the Founders had in mind.  The reality of continued attempts at tyranny of the majority in the United States is political deadlock and Back to the Economic Future for global GDP market share. China gains, we lose.
Keep your head up and your stick on the ice,
Daryl G. Jones
Managing Director

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.


EWW – iShares Mexico
We do not want to be net long Latin America (Brazil) anymore. Mexico short is a solid compliment to our short position on oil and our concerns about sovereign debt risks.

USO – United States Oil
Fund We have been waiting, patiently, to short the US Oil Fund on an up day, which we got on 2/2/10. We are bullish on the Buck and bearish on China right now. These factors contribute to our multi-factor (bearish) intermediate term stance on the oil price.

EWJ – iShares Japan
We shorted Japan on 2/2/10 after the Nikkei’s up move of +1.6%. Japan's sovereign debt problems make Greece's look benign.

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 Shares
We 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 Treasury
One 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 JapanWhile 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.