Lucid Intervals

“He is mad past recovery, but yet he has lucid intervals.”

-Miguel de Cervantes


Cervantes was one of the most famous novelists of the 16th century and he is often recognized as having tremendous impact on the Spanish language. He authored Don Quixote, the story of a man who, per our friends at Wikipedia, carried “his enthusiasm and self deception to unintentional and comic ends.” How appropriate a description for what we are watching unfold across global markets today.


In classic contrarian form, European stocks have been recovering their oversold losses for 6 out of the last trading 7 days. This short-term lift is largely a reflection of the manic media’s attempts to compartmentalize global macro risk reactively, rather than proactively. The timing of their fear remains the contra-indicator for global macro risk managers.


Debt laden governments are certainly “mad past recovery”, but they do have foreseeable “lucid intervals” of strength that you should capitalize on. As equally important as it was to have sold your international equity exposure into 2009’s hopeful year-end, is as important as it is to recognize that global markets don’t always crash in a straight line after they have incurred double digit losses.


Despite broad strength across Europe’s major stock market indices this morning, Greece’s Athex Index is losing another -2% of its value. Year-to-date, Greek equities are down -15.2% and they’ve crashed -35.7% since October 14th, 2009.


What does this mean? Shouldn’t all those who are pressing their Euro shorts be getting paid at the same time as they press the same bet? Doesn’t everything happen in the vacuum that our manic media and governments perpetuate? Hardly.


Greece’s deficit and debt issues are no different than America’s or Japan’s. Just because pundits are finally focused on them doesn’t make them new. These are going to be endemic issues that will not be resolved in the next 1 to 3 weeks. This madness of piling debt upon debt upon debt to solve for the economic incompetence of our politicians is chronic. Unfortunately, the long term pain will be with us for years to come.


So back to the grind of understanding opportunities in buying-low and selling-high this morning. For now, government’s are sponsoring volatility, and this is the best we can do to manage lucid intervals of the market’s hope.


Both China and Hong Kong were closed last night, but that certainly doesn’t change the fact that China is tightening monetary policy and that stocks across Asia remain broken across their intermediate term TREND lines. ‘Tis now the Year of The Tiger, but last year’s Chinese Ox remains in a Box. The 3 intermediate term TREND lines of resistance to focus your risk management on in Asian equities are as follows:


1.       China’s Shanghai Composite = 3155

2.       Hong Kong’s Hang Seng = 21,614

3.       Japan’s Nikkei = 10,466


In Europe, despite my being long Germany and the DAX trading up another +1.1% this morning, it doesn’t mean that the intermediate term TREND line is no longer broken. Stocks can rally to lower-highs and remain broken. As risk managers, we are tasked with selling into strength, not chasing it. Here are some major intermediate term TREND lines of resistance in European equities to consider:


1.       The UK’s FTSE = 5284

2.       Germany’s DAX = 5709

3.       Spain’s IBEX = 11,581


In Europe, despite most of the market’s attention being focused on Greece, Spain and Portugal again this morning, the inflation number in the UK is a critical one that will not cease to exist because it’s being ignored. For the month of January, UK consumer prices (CPI) hit a 14-month high, accelerating to +3.5% year-over-year. This inflation acceleration wasn’t in the area code of the Bank of England’s forecast, so please don’t ask them what they thought about it.


Later on this week, in the US we will get a continuation of the same. Year-over-year inflation reports in the United States will be running up +3-4%, and since the Federal Reserve doesn’t have this in its forecasts as being sustainable, please don’t ask them what they think about those numbers either.


Ask the US Dollar and the long-end of the US bond market’s yield curve what they think. Both continue to trade very bullishly, making a series of higher-highs on rallies and higher-lows on selloffs. Markets don’t lie; politicians do.


At the end of the day, despite the madness of all that has become this market circus of “enthusiasm and self-deception”, higher-cost of capital and tightening access to it will continue to manifest into a long term global affair. An addiction to debt has a long term price that needs to be paid.


My immediate term downside target for the SP500 remains 1046. I have intermediate term resistance up at the TREND line, which remains 1099. As a reminder, we’ll be hosting our Q1 Macro Theme update call at 11AM EST. Please email if you’d like to participate.


Best of luck out there today,





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.


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 ChinaThe 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.


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 TreasuryOne of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.


No real conviction either way heading into the Q. LV may disappoint in 2010 but mgmt is unlikely to give a realistic outlook. Here is the “YouTube” of forward looking statements from Q3’s release and conference call.



As we wrote about, Aria at CityCenter had a great start, especially on the Baccarat tables in its first 15 days of operations.  Some of it was good luck, some of it was volume related.  Either way, there appeared to be a significant degree of cannibalization on existing Strip properties, including MGM’s portfolio.  At the end of the day, however, 15 days hardly makes a trend.  That makes management’s forward looking commentary especially important.


Unfortunately, MGM’s management’s outlook has been unreliable.  We first wrote about this way back on August 6th, 2008 in our post “MGM MANAGEMENT: SOOTHSAYERS OR HOPEFUL AGNOSTICS?” and with the exception of “the bankruptcy months” in 1H 2009, management has put an overly optimistic spin on the outlook.  They will probably do the same this week and we have no idea how investors will react.  Short interest is high. Q4 was arguably better than people thought, and Macau is booming – at least for now.  The investment community may not put the appropriate “deflation factor” on management’s comments.  We’ll stay on the sidelines for now.


The following is the “YouTube” from the Q3 earnings release and conference call:





Forward looking & current trends 

  •  “On the Convention side, we confirmed approximately 550,000 convention room nights in the third quarter, which puts us at a booking level very similar to those before the downturn.”
  • “We have, in fact, returned to booking levels that are better than what we are seeing earlier this year and back to more normal levels. And we are confident that next year will be even better in this regard.”
  • “A recovery in convention business travel is key to increasing rates. And based on early bookings, it looks like that is achievable in the second half of 2010 and throughout 2011.”
  • “Our lead volume was up dramatically in the third quarter, up 9% versus last quarter, the second quarter or in the first quarter… We're also seeing that they're trying to secure their meetings before dates or space fills up again. We're seeing industries, like the farming industry, insurance and even auto industry, showing signs that they need to get back to Las Vegas. And the other good news, our conversion rates are also rising, as people are serious when they talked to us and we're booking a higher rate of those calls.”
  • “Cancellations have slowed down dramatically since the beginning of the year. We're not quite at our normal levels but we're getting close. And I think this is significant. 90% of the cancellations we had were for business occurring this year in 2009. We're getting very few cancellations for '10 or beyond.”
  • “FTEs are 12% lower in 2009 and 2008, and down 17% when compared to 2007 despite occupancy levels consistent with the prior year and our service standard's second to none.”
  • “We look for a meaningful margin improvement as room rates improve, given the significant operating leverage in our business model. As we've outlined before, for every $5 increase in ADR, we generate over $50 million in annual EBITDA. For every 100 basis points improvement in occupancy, we would generate nearly $40 million of annual EBITDA.”
  • “Our revenue and market outlook. Our room rates, we believe, will remain soft in the fourth quarter as we continue to occupy our buildings at higher levels. But we expect a lower year-over-year percentage decline than what we saw in the third quarter.”
  • “We think the visitation next year will be closer to 38 million, probably about 38.1 million. I think it's going to be up around 7%, is our guess. We project the room capacity next year in 2010 to be around 54.4 million available room nights. That's adding the capacity that we're adding and everything we know about the market, and that's about a 5% increase over 2009. So we think visitation is going to be up about 7%. We've been saying 5% to 10%, but we think it's going to be up about 7%.... We think that our market share will increase next year... We think CityCenter will be additive. We're projecting that citywide occupancy next year will be around 80. And we'll be north of 90% for 2010.”
    • For MGM’s sake we hope Jim is right, because December showed no signs of higher occupancy, and table win (ex Baccarat) as well as slot win were all down 
    • Same store volume metrics–slot and table– were both down double digits in December
  • “We believe that the visitation that we're going to see next year will lead to higher table win and higher slot win. We think both will be up double digits in the market, in fact. And that we believe that MGM MIRAGE is going to get more than its fair share of table win and slot win.”
  • “We see the Convention business starting to improve in April and accelerating throughout 2010 and into next year. And that will accrue to the benefit of primarily the higher-end properties.”
  • “So when we're talking about the rooms we've booked for next year, every quarter in 2010 improves…The lead times have also been expanded. So in other words, we've talked about booking windows being very tight, within 60 days, within 30 days. We're starting to see more rooms being booked 60 days plus out, which is also an encouraging sign where we're able to capture some of those rooms, and therefore, help us yield our rooms better on a going forward basis. And obviously, in 2011, it improves further.”
    • Seasonality alone explains this, since Q1 is the strongest group and convention quarter.
  • Q: “When you're giving numbers like that, is it same-store of existing inventory or is it with the addition of the rooms of CityCenter and the capacity at CityCenter?” 
    • A: “It's not same-store because ARIA is included but ARIA is so small relative to the overall rooms because of the vast space that we have at Mandalay Bay. So we can break it out separately on a same-store basis. We didn't do it here. But everything I'm looking at, the booking trends, for example, the convention bookings, that's all Mandalay for the most part. And the room nights we have in the pipeline for '10 and '11 are for the most part, all of the MGM MIRAGE wholly-owned properties. ARIA has a conference facility similar in size to Bellagio and really very small as a percentage of the overall portfolio we have at MGM MIRAGE. ….It can't be 5% of the increase in the room nights booked that we have for '10 and '11.”

City Center

  • “During this final phase of pre-opening, we expect to deliver approximately 340,000 hours of training, spinning 90 different courses. Of the 12,000 employees at CityCenter, 3,100 were hired from existing MGM properties.”
  • “At ARIA, we continue to see a steady pace of room bookings. We've already contracted 38% more room nights with convention groups over what Bellagio had done two months prior to its opening.” 
  • As for the room rate pricing in the Transient and Leisure Market segment, ARIA continue to be priced at a premium to Bellagio. From opening through August 31, 2010, which is a 258-day period, ARIA's price is greater than or equal to Bellagio 80% of the time in the Transient Market and 90% of the time in the Leisure Market.” 
  • Crystals: “We anticipate 47% of the square footage to open in December and have 82% of the square footage in terms of leases opened by July of 2010.”
  • “As it relates to the budget for CityCenter, with regards to this budget, $7.75 billion has been funded to date and we have approximately $740 million left to fund the completion of CityCenter based on our $8.5 billion budget. We have about $350 million remaining to be drawn on our CityCenter credit facility and $140 million in remaining sponsor equity to be contributed. And the remaining funds will come from closing proceeds from condo sales.” 
  • Unofficial guidance from Baldwin: “The $27 million in the first operating year is a little heavy. Usually advertising runs 1% to 2% of revenues and we forecast to have about $1.2 billion in revenues.”
    • And the $1.2BN is just for Aria…


  • Q: “Macau. How much did hold benefit the property-level EBITDA performance?”  
    • A:”Okay, so it's up a little bit. So that helped a little.”
      • Hold was 3.1% and helped revenues to the tune of $24MM in the 3Q.  While VIP RC looks like it’s down a little in 4Q, hold is a little low. So we expect a $40MM sequential decline in VIP revenues  
  • “As it relates to the Macau listing, we're clearly very interested in doing that and we've been moving very determinedly towards that goal. And we believe that, that will occur and could likely occur even as early as the first half of next year… We're very determined to take Macau public.”

Other commentary

  • “As of today, we have availability of $1.6 billion under our credit facility. This is enough capacity to take us through 2010, as we have approximately just inside $1.1 billion of senior debt maturing between now and the end of 2010.  We're in good shape as far as our bank covenant. We have a minimum bank EBITDA covenant of approximately $900 million.”
  • “Our total stock compensation expense, we estimate to be approximately $10 million in the fourth quarter. Corporate expense is estimated to be approximately $30 million to $35 million, including $4 million of stock compensation expense. Pre-opening expenses will be higher in Q4, primarily resulting from our share of pre-opening expenses with CityCenter's opening on December 16. Depreciation is estimated to be $170 million to $180 million in the quarter. Gross interest expense is estimated to be approximately $250 million to $260 million, with capitalized interest of $40 million in the fourth quarter. Our previous capital expenditure guidance was $200 million for the year. We're tracking to come in inside of that number. And so that guidance will be slightly lower as we finish up the fourth quarter.”
  • MGM management contracts: “They won't be largely profitable over the next couple of years and won't be significantly meaningful to our cash flows. This is an enterprise that will generate, we think, $100 million to $200 million of EBITDA annually, within next five years.”
  • “We don't give hold percentages quarter-to-quarter, but it was just slightly higher than our range. It wasn't materially so. So like maybe 100 basis points higher than our top end of our range, for example, something like that.”
    • 100 bps above the high end of their range is pretty material especially when it’s across that large of a base of volume
  • “On an annual basis, we've taken out over $700 million of cost savings out of the system… And we eliminated thousands of positions within this company. And so when you look at, for example, this past quarter, and you see that our FTEs were down about 12% year-over-year but our occupancy was equal with last year's, I think that's a very telling correlation”
  • “We'll be able to maintain that CapEx for the next few years.”

US STRATEGY - From Greece to China

Ahead of the long weekend the S&P 500 declined 0.27%, on a 35% increase in volume.  The global MACRO issues that are focused on Greece and China continue to drive sentiment.  On Friday, it was China’s turn to take center stage.  Seven of the nine sectors we track outperformed the S&P 500, but we only have two sectors positive on TREND - Healthcare (XLV) and Consumer Discretionary (XLY).  The Industrials (XLI) broke TREND on Friday. 


With the XLI breaking TREND on Friday it was the worst performing sector.  Some of the underperformance can be tied to tightening in China and worse than expected GDP numbers in Europe, which is weighting on the global RECOVERY trade.


Last week China hiked the Reserve Requirement Ratio for banks by 50 basis points; this follows a 50 basis point hike in January.  Concerns regarding Greece will not go away, as there does not seem to be real commitment buy the EU on how it will help out Greece.  The EU also has a lack luster economy to deal with.  The 16 country Euro area reported Q4 GDP of +0.1% sequentially vs. consensus +0.3% and prior +0.4%; dragged down by Germany reporting flat Q4 preliminary GDP vs. consensus +0.2% and prior +0.7%.


All of this was good news for our “Buck Breakout” theme. The Dollar index up 0.40% last Friday; the Hedgeye Risk Management models have levels for DXY at – buy Trade (79.60) and sell Trade (80.80). 


In the US, the January retail sales +0.5% vs. consensus 0.3% and prior of -0.3%.  As we wrote about on Friday the February University of Michigan Confidence preliminary number was 73.7 vs. consensus 75.0 and final January 74.4.


Consumer Discretionary (XLY) and Consumer Staples (XLP) outperformed the S&P 500 on the better than expected January Retail sales report and despite a disappointing preliminary February University of Michigan Confidence came in lower than expected and below last month. There were a number of earnings among the Restaurant industry; CAKE, CMG and PNRA were significant outperformers, while BWLD was the biggest loser.


On Friday, Technology was the best performing sector rising 0.2%.  MOT and the semiconductors were a source of strength.


Last week the VIX declined by 12.95% and closed at 22.73.  The Hedgeye Risk Management models have the following levels for VIX – buy Trade (22.05) and Sell Trade (28.27).  As we look at today’s set up the range for the S&P 500 is 53 points or 2.6% (1,046) downside and 2.2% (1,099) upside. 


At the time of writing, equity futures are trading above fair value as investors return from the Presidents’ Day extended weekend.  European markets were broadly higher with Financials outperforming following the earnings from Barclays. 


In early trading, copper rose for a second day as the dollar weakened.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.99) and Sell Trade (3.21).


In early trading gold is trading at a two-week high.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,046) and Sell Trade (1,121).


Crude oil rose as much as $1.33, or 1.8%, to $75.46 a barrel in New York.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (70.38) and Sell Trade (77.17).


Howard Penney

Managing Director


US STRATEGY -  From Greece to China - sp1


US STRATEGY -  From Greece to China - usd2


US STRATEGY -  From Greece to China - vix3


US STRATEGY -  From Greece to China - oil4


US STRATEGY -  From Greece to China - gold5


US STRATEGY -  From Greece to China - gold6


The Week Ahead

The Economic Data calendar for the shortened week of the 15th of February through the 19th is full of critical releases and events. This Sunday marks the beginning of the Chinese New Year; additionally many markets globally are closed Monday for holiday. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - cal1

The Week Ahead - cal2

Brazil's Developing Dirt

As a proactive global risk management exercise, we have recently focused our Hedgeyes on Brazil’s domestic newspapers (reading them in Portuguese).


Here are a few interesting takeaways that we have translated for you from this week’s domestic news. Ultimately, the US media focuses very little on the macro issues in Brazil, and we think there is an opportunity to be your risk manager calling out macro risks as they develop.


Political Corruption

11 – 12 February 2010 – O Globo (Brazil)


Jose Roberto Arruda, Governor of Brasilia, the nation’s capital city, has surrendered to Police in a corruption probe. 

Arruda is charged with accepting bribes in connection with awarding government contracts.  He was videotaped last year accepting bags of money and the video was YouTubed around the country.  His explanation at the time was that he was accepting donations to help him launch a program to distribute free panettone cakes for the city’s poor.  I kid you not.


One of the key witnesses in the government’s case claims he was offered a half million dollar bribe to reverse his testimony.


Five alleged co-conspirators have also been named.  Arruda was part of an opposition that had hoped to campaign against Dilma Rousseff, Lula’s hand-picked successor, partly by dredging up corruption charges that had been raised during Lula’s earlier presidential campaign.  It didn’t work against Lula then, and it doesn’t look like they will be able to use it now.  NB: Lula is leaving after two terms with something like an 81% approval rating.  This is amazing for a head of state who is not a dictator.


Lula expressed his concern about the implications of the arrest for the integrity of the political system – this is the first time in Brazil’s history as a democracy – post military dictatorship – that a high level official has been charged with corruption.


Social Unrest

O Globo 11 February – One of the directors of the social activist group Nos do Morro was found murdered in Rio de Janeiro.  Jose Frederico Pinhiero was found with his throat cut after being reported missing by his family.


Nos do Morro is a major Rio de Janeiro not-for-profit cultural and social welfare group founded in 1986.   It combines cultural activities with social programs in the Morro de Vidigal neighborhood of Rio.  It has programs designed to keep kids in school and promotes local culture.  Group members have been featured in national and international venues, including appearing in such internationally known movies “City of God.”


A related cultural group, AfroReggae, was also victimized.  Its leader was attacked and robbed.  The assailants were caught on street cam video but have been released on their own recognizance, pending court proceedings. 


[COMMENT: It is not clear to me whether there is police, or other government support for attacks against successful grass roots social programs, but clearly there is no immunity for the Good Guys caught between those warring for control in the inner city.  If these high-visibility champions of the inner-city poor are also their victims, one has to wonder how successful the government will be in cleaning up crime and violence in advance of the World Cup and Olympic Games.  This could get extremely ugly.]


Moshe Silver and Keith McCullough


FL: Thinking and Doing

When we originally wrote our “wishlist” (see note from 12/17) for Foot Locker, one of our key points highlighted the company’s opportunity to both right-size and optimize its 3,700 store portfolio.  We’ve already gotten confirmation of some store closures, and now we’re “seeing”  some efforts to optimize.  It appears that Foot Locker is converting its Union Square store in Manhattan into a new concept called, RUN by Foot Locker.   While no formal announcement has been made regarding this prototype, it’s currently under construction and in plain view.  Clearly if management wanted to keep this a secret they wouldn’t have picked this location…


FL: Thinking and Doing - FL RunSign 2 10


With our retail detective hats on, we observed several individuals working inside the store yesterday, mostly testing different wall displays.  The inside of the store is still very much in a raw state, so it’s probably at least a few weeks before we actually see any signs of opening.  Nonetheless, we view the idea of a running concept as a step in the right direction and potentially integral to the segmentation efforts needed to differentiate the chain (both amongst competition and itself).  As a reminder, running is the largest sub-segment of the athletic footwear market with nearly $5 billion in sales at retail, and one that has been showing substantial growth for about a year.  Additionally, while none are publicly traded, there has been an increase in the growth of specialty running stores over the past few years with the likes of Fleet Feet, Road Runner Sports, and others.  


FL: Thinking and Doing - FL RunningYYChg 2 10


Unique to any credible running effort is a wide selection of technical brands and most importantly customer service.  In running specialty stores there is very little price promotion or discounting.  Maybe a loyalty program to foster repeat business, but barely any POS promotions.  Wouldn’t that be a change for the historical champion of the BOGO strategy? While it’s too early to tell exactly what Foot Locker is planning for its price/value message here, there is no question that running shops make up for discounting with exceptional customer service.  Which from a runner’s perspective, typically includes personalized fitting, gait analysis, and other technological innovations aimed at matching the customer with the ideal shoe.  


Another key aspect of specialty running shops is community involvement, which often makes the stores a hub for marketing local events, classes, and outreach.  Yes, they’re very Lululemon-like when it comes to mixing commerce with true passion for the sport.  Clearly there is work to do here as the concept evolves, but building a service oriented culture could have substantial ramifications not just for a running concept, but for the entire chain.  After the store opens, we look forward to a field trip to test out this theory.


Another thought… is this a way to diversify away from Nike without changing Nike’s space allocation at existing Foot Locker stores? That would be a margin boost for FL – to the extent it can still drive traffic. In a category like running, that would probably not be a problem.  But on the flip side, our sense is that FL tests some Nike mono-brand stores, where FL will carry the real estate and fixtures, while Nike will sell in as a wholesale model.


Will these work? We don’t know, and for now we don’t care. Test or no test, the bottom-line here is Foot Locker’s new leadership is thinking and doing.   We’re on the cusp of hearing more details about the broader strategic plan, but again this is a step in the right direction.  It certainly seems like a better idea than long lost Footquarters.  We also suspect this isn’t the only idea to come from management.  Now if only all of these “labs” were in a 1 mile radius of company headquarters it will make the detective work much easier…


- Eric Levine


FL: Thinking and Doing - Footwear Running Market Image 2 10



FL: Thinking and Doing - FL RunSign2 2 10



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 80.46%
  • SHORT SIGNALS 78.35%