Father Knows Best

I find it both amusing and telling to see the timeline below of the 3 years leading up to the demise of Boscov’s – which filed Chapter 11 today. The punchline is that the founders of the business saw this coming. They cashed out in early ’06 – the same time private equity money was free, and the writing was on the wall for the apparel retail business heading into ’07 and beyond. Boscov’s is not alone in founders cashing out at the top. Goody’s, Chick’s Sporting Goods (before sale to Dick’s), as well as others. Whenever a founding family looks to sell 100 years of blood sweat and tears. Run. Fast.

Thanks to First Rain for directing me to several articles on the topic.

Scary Growth Chart: Chinese PMI

Just the chart. Pretty self explanatory.

Asian Inflation Mapping

Andrew Barber put together this picture today as it summarizes a lot of what global equity markets continue to struggle with - the reality that it is "global this time" has far reaching (not always positive) implications.

Below is our Asian Inflation Chart (Korea, Thailand, and Indonesia) using the July reports that have been issued in the last week.

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China's FXI Chart: Keep A Trade, A Trade

I called it my Chinese rental, you can call it what you will. We need to keep this long side trade a trade. The FXI etf had a solid +8.5% move from July 2nd to this past Friday's close, outperforming most asset classes over the same time period.

Alpha is cool. Do not get greedy when you can realize it's gains. Friday's Chinese PMI report was alarming, as was this morning's killing of 16 policemen in Xinjiang.
Research Edge Chart by Andrew Barber, Director

Chinese Yuan Has Biggest Weekly Loss Ever...

This was the Yuan's sharpest weekly loss since its 2005 revaluation, that is. This is what we need. This is deflationary for US imported inflation.

I'll refer you to the Asian tab on the portal for the "why's"? I think the most important “why” was the 1st contraction we've seen in the Chinese PMI survey since 2005. This happening before the Olympics definitely caught me by surprise, considering in most cases that China has the ability to make some of these number up.

The worst week however, in context, for this currency is a -0.34% move. So let's not get all hyped up about this. Re-flating the US Dollar, and deflating the Chinese Yuan is going to be a long term process.

The Yuan is currently trading at 6.84 per US Dollar, and is still up +6.7% year over year relative to it.
Picture: (


As a former CPA, I know that from an accounting perspective, accelerating expenses is considered “conservative”. As a financial analyst I disagree. Big charges certainly suppress current GAAP earnings. However, companies know that analysts exclude big charges and expenses as one-time items in their calculations of “operating” EPS. Moreover, big charges can reduce future periodic expenses and obviously inflate forward EPS. That sounds aggressive to me, not conservative.

Many companies assist the analysts by providing Adjusted EPS. My analysis shows that in most cases Adjusted EPS just excludes bad stuff. Looking back at the last 6 quarters in my universe, gaming companies are clearly the most egregious offenders while leisure companies tend to shy away from the adjustment game. Lodgers fall somewhere in the middle. Gaming companies provided Adjusted EPS that was higher than GAAP EPS an astonishing 80% of the time. Contrast this with the leisure group at only 7%. Within the gaming sector, BYD, LVS, and PNK are perfect with their Adjusted EPS batting average exceeding GAAP, and WYNN is not far behind. We at Research Edge are not big fans of EPS to measure valuation and this is just one more reason why.

Gamers consistently report Adj EPS higher than GAAP

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