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CONSUMER NO-CONFIDENCE - WHY!

As we previewed yesterday we thought consumer confidence in February would not live up to expectations….

 

The Reuters/University of Michigan preliminary consumer sentiment index dropped to 73.7 from January’s 74.4 reading and expectations of 75.0.  How can this be happening at a time when GDP is 5.7% in 4Q09 and the unemployment rate unexpectedly dropped in January?

 

Here is my list (feel free to add to it if I miss anything):

 

(1)    40% of American STRONGLY DISAPPROVE of the way President Obama is performing.

(2)    While the U.S. unemployment edged downward in January, consumers still appear a little wary about the labor pool.

(3)    Those with a job are worried about becoming laid off.

(4)    For most consumers paying down debt remains the priority.

(5)    Most consumers are focusing on needs over wants.

(6)    3, 4 and 5 suggest that most consumers are just not that comfortable with their financial standing.

(7)    The market’s decline at the end of January appears to have rattled investor confidence this month.

(8)    25-30% of consumers are underwater with their mortgages.

(9)    This winter sucks.

 

Ben Bernanke recently said the Federal Reserve will raise the discount rate “before long.”  With conventional mortgage rates around 5% and likely headed higher this could deflate very important assets on the consumer’s balance sheet.  It’s unlikely that current conditions are going to improve to a degree that we see any significant move to the upside in consumer confidence. 

 

Howard Penney
Managing Director

 

CONSUMER NO-CONFIDENCE - WHY! - michiganer

 


CHH 4Q09 CONF CALL "TRANSCRIPT"

CHH 4Q09 CONF CALL "TRANSCRIPT"

 

CONF CALL

  • While the domestic new construction sales environment in NA will remain challenging, they will benefit from conversions when M&A activity picks up
  • See tremendous growth for their conversion brands
  • Returned 90% of their generated cash flow through dividends and buybacks in 2009
  • Grew membership in Choice Privileges (CP) by 2MM, and now CP members now deliver 25% of gross revenues. Hope to add 2.2MM CP members in 2010
  • New construction franchise sales are more impacted - declined 72%. Conversion sales decreased 32%
  • Repurchased an additional 200k shares through Feb 11, 2010
  • Had $65MM R/C availability as of Feb 11, 2010
  • It's clear that conversions are where the action will be for the next 18 months

Q&A

  • Conversion demand outlook?
    • New construction demand will be challenged with the lending environment through 2011.  However, when it comes back it will come back first to limited service.
    • Conversions will accelerate when they feel more comfortable that trends have bottomed and when transaction volumes pick up.  Independent conversion is also an opportunity.
    • In the meantime, they have the ability to incentivize some deals by providing sliver capital
  • Why does upscale makes sense for them
    • Because they are unrepresented there... need to be in more urban locations, which tend to be more upscale and upper upscale opportunities. Will also give them the opportunity to grow more internationally
    • Hope that they will find the right opportunity this year
  • Why is Comfort Inn room down sequentially?
    • "pruning" hotels that aren't meeting brand standards and moving a significant number of those into Quality bands
  • Why are they confident that their limited service brands will see a steep RevPAR recovery throughout the year
    • They usually are a few quarters behind full service.  Believe that there will be an upturn in RevPAR mid year, and that they will have a more dramatic recovery in back half
    • RevPAR in Q2-Q3, down mid single digits and Q4 flat
    • Q1 gets less weighting 
    • Their busiest time is the summertime - since they are leisure oriented and looking for value
  • Have less RevPAR sensitivity and hence its easier for them to "make their numbers" by tweaking below the line items
  • What kind of brands are they interested?
    • It will include brands that own real estate but they are not interested in owning that real estate
    • Thinks that there should be some attractive acquisitions in the next 18 months, but they haven't shown themselves yet
  • SG&A for 2010?
    • Low single digit % increase.  To the extent the development is better or worse, commissions will impact that.
    • Believe that they have some more flexibility on the SG&A but that they are sized appropriately and would like scale their structure
  • Have they considered helping their franchisees access larger banks?
    • They are most likely not going to be able to help since the majority of loans are sub $7MM and don't have multiple franchises
  • Do they think that leisure travelers are taking advantage of trading up?
    • No - they gained share last year.  They did see some of their competitors "buying" share late last year. This is still a definite value orientation on a net net basis
    • Giving people what they want: Free breakfast, free parking, free internet
  • R/C refinancing?
    • Tenor is shorter now than what is was before. So they will consider terming out some debt.  Will need to address the R/C refinancing sometime in 2010- but not sure when. There is a possibility that they will put some fixed rate debt back in the structure at a 5-6.5% rate for a CHH like credit, depending on tenor.
    • Not counting on significant interest rate hikes in the near term, so that's why they are thinking about fixing some debt. Despite it being near term dilutive, its a good move in the longer term
    • Will not use FCF to delever, want to keep returning cash to shareholders
  • Would they need to see to accelerate the buyback
    • If they saw a significant gap btw share price and their perceived value of the company
  • They will stay with the franchise model when and if they go upscale.  When they go internationally they sometimes need to adjust their model.  If they buy a brand with significant management business they will figure out what to do with that.  Want to stick with just franchise
  • They are participating with EXPE at similar levels that they have done historically.  EXPE is not a significant distribution channel for them
  • SG&A decreased as a result of lower variable commissions and reduced headcount by low single digit
  • Ok this guy is a little slow... yes interest rates declined in 2009 and CHH has all variable debt

IT'S NOT JUST GREECE

IT'S NOT JUST GREECE - CDSer

 


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 80.33%
  • SHORT SIGNALS 78.49%

R3: Footwear Moves Up, Apparel Status Quo

R3: REQUIRED RETAIL READING

February 12, 2010

 

This morning we highlight a handful of key observations from the latest set of weekly sports apparel and footwear data. Overall, status quo on the apparel trend, with an uptick in athletic footwear led primarily by Nike. Our top pick in the space also remains Nike, although this is certainly not a call on one week's data.

 

 

TODAY’S CALL OUT

 

This morning we highlight a handful of key observations from the latest set of weekly sports apparel and footwear data. Overall, status quo on the apparel trend, with an uptick in athletic footwear led primarily by Nike. Our top pick in the space also remains Nike, although this is certainly not a call on one weeks data.

 

R3: Footwear Moves Up, Apparel Status Quo - 1

 

APPAREL

 

  • Athletic apparel industry dollar sales for the week are in line with current trends observed over the past 3 weeks. No notable change in sales cadence, with the exception of a slight narrowing of performance between the traditional Sporting Goods retailers and the Discount/Mass retailers. Recall that we recently noted a wide divergence in performance between these two channels, which suggested the consumer has been decidedly in favor of branded performance apparel vs. other value priced offerings.
  • We may be observing a small pick-up in discounting in the Sporting Goods channel, although it’s probably still too early to make a big callout on this. The 1% decline in ASP’s for the week, offset with an acceleration in unit sales suggests that there may be promotional activity. We suspect this is post-season clearance, but we will keep an eye on this in the coming weeks.
  • Adidas sport apparel sales growth has been on a path of steady decline since the beginning of the year, with those declines accelerating to a 1.2% y/y decrease. This marks the brand’s first negative reading since the beginning of last Summer.

 

FOOTWEAR

 

  • This week we observe a sizable inflection to the upside on overall industry sales, with the two-year trend growing for the first time in 4 weeks. Strength across the Nike brand portfolio is was a key driver of the acceleration.
  • Nike posted a 53% increase y/y for the week, driven in part by a +3000bps sequential improvement in Brand Jordan. Clearly new product introductions are helping here.

 

R3: Footwear Moves Up, Apparel Status Quo - 2

 

  • With expectations for Under Armour footwear tempered by management’s focus on building the product line and brand for the long term, we see continued weakness for the brand at retail. However, this week’s sequential deceleration was 2200bps, still a large decline but substantially better than trends we have seen in recent weeks.

 

R3: Footwear Moves Up, Apparel Status Quo - 3

 

Eric Levine & Darius Dale

 

 

LEVINE’S LOW DOWN

  • When asked about key drivers of sales in the near-term, Family Dollar’s CFO suggested that efforts to expand store hours is at the top of the list. By the end of the this month, FDO expects to have all stores rolled out with expanded hours. This marks an acceleration in the rollout, which means either sales have slowed and they are attempting to make up for it, or the extra hours actually drive incremental sales. Either way, consumables sales are still outperforming discretionary- a trend that is expected to continue until we see a measurable change in the economic backdrop.
  • Along with a better than expected earnings report, VF Corporation also announced it is stepping up its marketing and product development efforts in 2010. The company will spend an incremental $50 million or 70 bps as a % of sales, to bolster market share in The North Face, Vans, 7 For All Mankind, and in the Asia region overall. Approximately $40 million will be spent on advertising while the rest will come in the form of product development and innovation. Included in this plan is The North Face’s first foray into TV advertising.
  • Even after recording the first year of coupon usage growth in over a decade, Free Standing Insert coupons (you know, the Sunday paper kind) grew at a substantially slower pace than their digital equivalents. According to coupons.com, digital coupons grew at a rate of 10 to 1 vs. traditional paper based promotions. Approximately 20% of the U.S population used digital coupons last year. Additionally, digital coupon users tend to have higher household incomes than traditional coupon clippers.

 

MORNING NEWS

 

Coach Plans Spring Opening For First Store Focused On Men - Coach Inc. (COH) is opening its first men's-only store as the retailer moves to extend its reach beyond traditional female customers. The store will be on trendy Bleecker Street in New York City's West Village, taking over space that was occupied by a Ruehl boutique that was closed as Abercrombie & Fitch Inc. (ANF) shuttered the concept last year.  <wsj.com>

 

Birkhold Outlines New Lacoste Strategy - Steven Birkhold assumed the chief executive officer position at Lacoste’s U.S. business on Jan. 4 and is laying out a postrecession strategy for the French sportswear brand. The former Diesel USA ceo’s game plan includes expanding merchandise assortments outside of Lacoste’s core polo business, opening new outlet stores to de-emphasize markdowns in full-price doors, opening a concept store for the trendy Lacoste Red collection and doubling marketing expenditures in the U.S. Currently 30 to 40 percent of the U.S. business is in polo shirts. “There are literally thousands of sku’s available from the Lacoste collections in France and maybe we’ve been too narrow in our editing process for the U.S. market over the last few years,” said Birkhold, who has taken steps to widen assortments for fall. <wwd.com>

 

LVMH Takes Another Ebay Decision - LVMH Moët Hennessy Louis Vuitton has won another case against online auction giant eBay — this time for its flagship Louis Vuitton brand. Calling the decision a victory in protecting consumers against counterfeiters, Vuitton said Paris’ Tribunal de Grande Instance, or Superior Court, ordered eBay to pay it 200,000 euros, or $275,206 at current exchange rates, in damages, as well as 30,000 euros, or $41,281, for legal fees. The court also ordered eBay to stop using Vuitton-related key word searches or face fines of 1,000 euros, or $1,376, per infraction. “Louis Vuitton welcomes this decision which confirms established case law that aims to protect the consumer from the illicit use of company trademarks,” said Nathalie Moullé-Berteaux, global intellectual property director of Louis Vuitton. EBay said it was disappointed by the Paris court’s decision, but satisfied LVMH had been awarded just 200,000 euros, instead of the 1.2 million euros, or $1.6 million, the luxury group had originally requested. <wwd.com>

 

Kohl's Launches Multi Million Dollar Initiative to Fight Breast Cancer - Kohl's Department Stores (NYSE: KSS) announced today a new philanthropic initiative to fight breast cancer in the state of Wisconsin. Kohl's will donate more than $7 million over the next three years to the American Cancer Society and the Milwaukee Affiliate of Susan G. Komen for the Cure. The donation, which will be used to support breast cancer research, education and patient-assistance programs, represents the largest corporate gift ever made to the Komen Milwaukee Affiliate — or any national Affiliate — of Susan G. Komen for the Cure®, as well as to the American Cancer Society’s Midwest division, which includes Iowa, Minnesota, South Dakota and Wisconsin. "At a time when many companies are cutting philanthropic giving, we are in a financial position that allows us to expand our community relations programs with a new focus on women's causes," said Kevin Mansell, Kohl's president, chief executive officer and chairman of the board. " <prnewswire.com>

 

How Best Buy stays relevant in a changing online world - It’s getting more challenging to reach increasingly demanding customers online, so Best Buy Co. Inc. is carrying out a three-part web strategy of enhancing accessibility, localization and personalization, John Thompson, general manager of BestBuy.com, will tell his audience during his keynote address at next week’s Internet Retailer Web Design & Usability Conference.  In a presentation he has entitled Staying relevant in a changing landscape, Thompson will describe the steps Best Buy is taking to connect with shoppers in new ways, engage consumers at a local level and personalize key components of its web site to increase the relevance for shoppers. Thompson, who joined Best Buy in 2001 as senior vice president of supply chain and business systems for Best Buy stores, has also worked as a senior executive at other major retailers. He was chief information officer at Liz Claiborne Inc. and chief information officer and executive vice president of merchandise planning and logistics at Goody’s Family Clothing Inc.  <internetretailer.com>

 

Charlotte Ronson Entering Chinese Market - Charlotte Ronson has formed an alliance with Hong Kong-based MH Concepts to bring the contemporary brand to China. The partnership marks Ronson’s first Chinese venture and will begin with the fall Charlotte Ronson collection in July, when four doors open in Hong Kong, Shanghai, Beijing and Guangzhou. Six additional doors are to launch before yearend, reaching a total of 200 by 2014 throughout China, Hong Kong and Macau. The doors include freestanding stores, mall units and department store shop-in-shops. Thirty percent will be directly operated by MHC, and the rest will be franchises. Merchandise will be sold in China online at charlotteronson.cn. The entire venture is expected to generate $10 million in first-year sales. <wwd.com>

 

TNF Expands PlanetExplore to New York Area - The North Face today announced that PlanetExplore, a new online resource for outdoor recreational activities, is now available in the New York region. Created by The North Face, PlanetExplore is an online community of national and regional organizations, helping people of all ages find local outdoor recreational activities. The New York launch of PlanetExplore comes on the heels of The Outdoor Foundation’s recently released Special Report on Youth, which found that outdoor participation among youth continues to decrease each year, with the rate of decline steepest among the youngest age groups. After launching in the San Francisco Bay Area, home of The North Face, PlanetExplore expanded into the Midwest with a Denver release, and is now available nationwide with the New York introduction. The site has partnered with more than 100 non-profit organizations across the country, offering many opportunities to discover a diverse array of outdoor activities. <sportsonesource.com>

 

Burton Cuts Small Percentage of Staff and Reinstates Salaries - Burton has restructured its North American staff, resulting in a layoff of less than 2% of its global employee base. The company also announced that it reinstated salaries and merit increases that were decreased eight months ago due to the economic downturn. "Burton continues to lead the industry, which is in better shape than it was one year ago," says Burton CEO Laurent Potdevin. "Layoffs are always difficult, but in today's changing marketplace, some restructuring was necessary to maintain our investments in product development and marketing." After staff reductions, Burton employs over 600 people in North America, with its total global headcount topping 950. <sportsonesource.com>

 

Retailers are turning to social media, video and faster buying, study shows - The 2009 holiday shopping season was perhaps the roughest in the history of online retailing. The wretched economy caused consumers to rein in spending and conduct more comparison shopping, hunting for the best deals.

Changing consumer behavior throughout 2009, in turn, caused retailers to try new selling and branding techniques, or augment existing ones. Three areas of change included the use of social networking, online video and streamlined purchasing, according to The E-tailing Group Inc.’s annual study of 100 online retailers. 60% of the retailers in the study featured on their e-commerce sites links to social network presences, notes Lauren Freedman, president of the research and consulting firm. Freedman will be speaking at the Internet Retailer Web Design & Usability Conference, Feb. 15-17 in Orlando, FL, in a session entitled Lessons from Holiday 2009. <internetretailer.com>

 

U.S. Textile, Apparel Imports Fall in '09 - The volume of textile and apparel shipments to the U.S. declined in 2009 amid the global recession, even as imports from China and Vietnam continued to rise.The overall U.S. trade gap widened in December to $40.2 billion, compared with $36.4 billion in November, primarily because of a surge in oil imports. Nigel Gault, chief U.S. economist for IHS Global Insight, said U.S. exports are likely to grow but imports will be subject to fluctuations as the global economy rights itself. Despite the wider trade deficit in December, he said, “It is hard to describe the trade figures as bad news, since they show a continuing robust rebound in world trade.” Textile and apparel imports dropped 7.5 percent to 46.6 billion square meter equivalents compared with 2008, the Commerce Department Office of Textiles and Apparel said Wednesday. Apparel shipments for the year fell 6.1 percent to 21.3 billion SME. Textile shipments were down 8.6 percent to 25.3 billion SME. <wwd.com>

 

Consumer Groups Warn About Tax Refund Loans - Millions of Americans buy pricey refund-anticipation loans, or RALs, instead of waiting for their free IRS checks. Consumer advocates have warned taxpayers for years about the loans that, they say, drain millions of dollars out of U.S. tax refunds each year. Indeed, 8.4 million Americans took out RALs in 2008, costing them $806 million in interest payments and fees, according to data recently published by two consumer advocacy groups; the Consumer Federation of America and the National Consumer Law Center. RALs often carry annual percentage rates as high as 500 percent, according to the law center, with an average RAL of $3,300 carrying a rate of 72 percent.

Refund-anticipation lenders often target low-income taxpayers, especially those who receive the Earned Income Tax Credit, according to the IRS. About 1 in 17 tax returns filed in 2008 involved a RAL.  <abcnews.go.com>


M3: TOURIST ARRIVALS FALL, LATEST ON CNY, NEW GALAXY HIRES, IMPLICATIONS OF ONLINE GAMING CRACKDOWN

The Macau Metro Monitor, February 12th, 2010


MACAU TOURIST ARRIVALS FALL 3% YOY IN DECEMBER  DSEC  

According to the Statistics and Census Service, visitor arrivals in package tours to Macau decreased 3% y-o-y to 486,382 in December.  Tourists from mainland China dropped 4% to 332,550, while those from Hong Kong and Taiwan slumped 20.3% and 31.4%, respectively. On the other hand, tourists from Japan increased 24.9%. Meanwhile, the number of Macau residents traveling abroad in package tours jumped 11.2% annually to 25,202 in December, with mainland China and Japan being the most popular destinations.

 

GONG XI FA CAI  Destination Macau

Macau expectations are high for the upcoming Chinese New Year. Right now, it is a good sign that all hotels are fully booked for 12 days starting Feb 12. Sunday and Monday may not be very busy on the mass floors as day-trippers celebrate CNY with family members but DM expects heavy traffic through Gongbei on Tuesday.

 

GALAXY LANDS SOME BIG FISH  Destination Macau

Galaxy has recently made some big profile hires ahead of it's 1Q2011 opening of Galaxy Macau Resort. DM has heard through the grapevine that Galaxy hired Jorge Neto Valente and Mark Brown. Mr. Valente is known as Macau's premier dealmaker who formerly served as Venetian Macau's managing director and Mark Brown was formerly the head of LVS's macau operations before being pushed out.

 

CHINA CRACKS DOWN ON ONLINE GAMING  Destination Macau

DM thinks that China's recently launched online gaming crackdown could impact some of Macau's biggest VIP room operators who run online gaming sites in China as a way to traffic money on and offshore.  If these VIP operators are impacted, it would hamper their ability to service junket players.


China'a Adam's Apple

“The tighter you squeeze, the less you have.”

-Thomas Merton

 

China is tightening reserve requirements on its banks by another 0.5% this morning. This is not new. This is a longstanding reminder that the tighter you squeeze a banker’s lending terms, the less he has.

 

In sharp contrast to Western politicians, the Chinese government doesn’t seem too keen on bailing out bankers or juicing up the pre-market futures of its stock market. China’s strategy in dealing with lenders appears to be far less diplomatic.

 

After seeing that moon-shot Chinese loan growth number of 1.39 Trillion Yuan for the month of January (reported yesterday), Big Brother China appears to share the tactical view of one of America’s Three Stooges, Moe Howard, telling their local lenders that, “I’ll squeeze the cider out of your Adam’s apple.”

 

With that, we enter the waning hours of China’s Lunar Year – the Year of The Ox – and, oh, what a year it was. By the end of the Western world’s calendar year, the Shanghai Composite was up +80%, GDP was running double digits at +10.7%, and China was still reporting year-over-year deflation in its Consumer Price Index (CPI). Economic nirvana, in the rear-view. Then, after Goldman said “buy China” in early January, the music of free moneys stopped.

 

Alongside Buck Breakout and Rate Run-up, this has been one of our Top 3 Macro Investment Themes for Q1 of 2010. We called it Chinese Ox In a Box. We will be reviewing these 3 Macro Themes on a special intra-quarter conference call after this long weekend. If you’d like to participate in that call, please email . As usual, our subscribers will have some great questions and we won’t have Investment Banking Inc. auditing our answers.

 

We were bullish on China for most of last year, and our long term TAIL (3 years or less) call on China’s economy remains intact. However, our call for the Chinese Ox In a Box here in Q1 has us short China (CAF) for both immediate and intermediate term durations. We call these durations TRADE and TREND.

 

Conceptually, we do not like to think within the sell-side box. We pressure ourselves to consider multiple durations and multiple price outcomes across those durations. Some investors have one duration – long term - and are willing to remain long something like China’s stock market for 10-20 percent corrections. As Real-Time Risk Managers, that’s definitely not what we do.

 

Currently, because we are bearish on China doesn’t mean we are calling for a crash. We are simply calling for what the Chinese government has told us it is going to do – slow speculative growth. There are plenty of places to quantify Chinese speculation, but here are 3 factors we have been proactively anchoring on:

 

1.       Money supply growth

2.       Chinese Yuan-based loan growth

3.       Chinese stock prices

 

Money supply growth (M2) is already slowing (from +29.7% y/y growth in November to +26% y/y just reported for January). Chinese Yuan based loan growth is accelerating (the January print of 1.39T Yuan implies y/y growth of 73%! versus last year’s record +52% annualized pace). And Chinese stock prices are some of the worst performing, globally, for 2010 to-date.

 

So, all in, 2 of 3 fixes are in motion and the last one to fix is most likely to correct most abruptly. To some extent, seeing a final rip higher in Chinese loans this past month makes sense. If you know Big Brother China is going to tighten, you probably clamor to borrow as much as you can before he actually does good by his promise.

 

You see, in China, they mean what they say, and they do what they mean. While the Chinese have yet to raise interest rates on their benchmark lending rate or allow the Chinese Yuan to appreciate, those two things are coming to a CNBC pre-market open theater near you as well. So, again, that’s a foreseeable global macro risk that you shouldn’t wake up surprised to like people are, evidently, here in the US this morning.

 

From a risk manager’s perspective, I can simplify all 3 of the aforementioned research factors by correlating them with the lines of support and resistance in my 3 factor duration model (TRADE, TREND, and TAIL). For the Shanghai Composite, here are those lines:

 

1.       TRADE line resistance = 3098

2.       TREND line resistance = 3176

3.       TAIL line support = 2881

 

Put another way, I will cover my short position in China (CAF) as the real-time market price approaches my long term TAIL of support at 2881. Last night, the Shanghai Composite closed at 3018 (down -7.9% YTD), so that gives me another -4.5% of downside from here.

 

Again, I am currently not calling for a crash, nor am I saying I may not start to call for a crash. What I always say is 1. that as the game changes, I will, and 2. that as people start to freak-out about China, I have a proactive plan to cover my short position and consider the long side again. Everything has a time and a price.

 

A drop to 2881 would equate to a -13.7% correction in Chinese equities versus the recent cycle-peak made of 3338 on November 23, 2009. As the crowd rolls in here worrying about Chinese tightening, you want to roll out. Understand that this situation is A) not new and B) likely to continue, to a point.

 

Chinese property stocks peaked in July of 2009. The healthy correction in those stocks obviously isn’t new either. Yes, “the tighter you squeeze, the less you have,” but markets move on expectations, not yesterday’s news.

 

Expectations for Chinese bankers and levered long only stock market speculators alike are well entrenched. They expect to have the “cider squeezed out of their Adam’s apple” if they don’t tone it down. Just remember that as CNBC scurries away from focusing you on Greece.

 

Best of luck out there today and have a great long weekend,

KM

 

LONG ETFS

 

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 — We added to our position in Germany on 2/4/10 on 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.  

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.
 
SHORT ETFS

 

GLD – SPDR Gold We re-shorted Gold on this dead cat bounce on 2/11/10. We remain bullish on a Buck Breakout and bearish on Gold for Q1 of 2010, as a result.

 

CAF – Morgan Stanley China The Chinese Ox Remains In A Box. We shorted CAF on 2/10/10 ahead of another inflationary report that registered China’s CPI at +1.5% in January Y/Y, and PPI at +4.3% Y/Y.

 

RSX – Market Vectors RussiaWe shorted Russia on 2/9/10 and maintain our intermediate term TREND bearish view on the price of oil.

 

XLP – SPDR Consumer Staples The Consumer Staples sector finally broke both our TRADE and TREND lines on 2/8/10. Given how many investors own these stocks because it was a "way to play the weak US Dollar" last year, we have ourselves another way to profit from a Buck Breakout with this short position.

 

EWW – iShares Mexico Mexico short is a solid compliment to our concerns about sovereign debt risks and our bearish intermediate term view on oil.

 

EWJ – iShares Japan We re-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.

 

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.


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