The Economic Data calendar for the week of the 3rd of May through the 7th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.
I said my piece this morning in the Early Look (“Good Guys” at www. Hedgeye.com) on what I think about Bank of America’s hypocritical downgrade, but that doesn’t change the reality that managing risk around GS is simply a mathematical exercise augmented by an understanding of market sentiment.
If you’d like the opposite investment process of mine for a view, here’s the qualitative view on GS from one of America’s perma-bulls:
“I don’t think there’s any evidence that they would lose enough business that you would notice it… it’s much more of a political problem and a reputational problem that I believe will pass.” (Bill Miller, Chairman and CIO of Legg Mason)
The intermediate term TREND line of resistance that we signaled on 4/16 remains intact up at $165.11, and today GS is breaking down through an important immediate term TRADE line of support at $156.98. Next line of significant support = $143.96.
Don’t make analyzing this situation personal. It’s just math.
Keith R. McCullough
Chief Executive Officer
In preparation for BYD's Q1 earnings on Tuesday we've highlighted management's forward looking commentary from its Q1 conference call and subsequent investor conferences.
TRENDS & OUTLOOK
Business update from Barclay’s conference on 3/26/2010:
Q4 CONF CALL:
R3: REQUIRED RETAIL READING
April 30, 2010
TODAY’S CALL OUT
We definitely saw a meaningful divergence in Timberland’s European results vis/vis what we should be seeing based on the underlying macro climate. The company noted that every single country in the region posted growth in its most recently completed 1Q. This is the exception – not the norm. Several people have asked me if we are hearing of any weakness overall in Europe given the volatility in financial markets. While I have not ‘heard’ of things slowing down en masse, I think that by the time any of us ‘hear’ about any broad-based weakness, it’s probably too late. Let’s accept the premise that things will slow – and anyone who is exposed to Europe that does not at least prepare for this coming down the pike from a risk management standpoint opens themselves up to a very big day of reckoning. In other words, the questions that we should be asking managements are “what are you doing to prepare for a potential slowdown” instead of “have you started to see any weakness.”
LEVINE’S LOW DOWN
- While some supermarket bulls have been eagerly awaiting the arrival of inflation to help reverse negative sales trends for the traditional grocers, Safeway articulated that is not able to pass along price increases in certain key categories. CEO, Steve Burd, noted that milk, eggs, and meat are categories that are still being promoted heavily to attract traffic, and therefore recent cost increases are not being matched with commensurate or even greater increases in retail prices. Sounds like non-traditional grocers still have the upper hand competitively.
- In a unique collaboration, Fruit of the Loom and Amazon.com joined together to launch an innovative bra. The innovation stems from the option which allows a woman to choose the left and right cup size independently, with each half costing $5. While the product itself is unique on a mass level, it’s even more interesting to see Amazon as the online distributor of the product while Wal-Mart is bricks and mortar partner.
- Office Max noted that April trends are tracking below Q1 results as well as March. However, when asked about what may be the cause of the sequential slowdown, management was unable to fully articulate the key factors. Instead, we were reminded of how the recovery is not linear and will be filled with “peaks and valleys” along the way. In other words, small businesses still remain under pressure.
JNY in the M&A Rumor Mill - Jones Apparel Group Inc. could be close to a deal to acquire a stake in Stuart Weitzman. People familiar with the matter said that a deal between Jones and Irving Place Capital, Weitzman’s minority investor, could happen as soon as today. There is also some speculation that Jones could acquire more than Irving Place’s 40% stake. One investment banker said negotiations between Jones and Weitzman have been going on for a while. Weitzman himself has been very vocal about finding a succession plan. The founder, 68, is actively searching for a CEO and a president of retail. <wwd.com/footwear-news>
NWY Declares a New CEO for Next Year - Gregory Scott, a former chief executive officer of Bebe Stores Inc., will succeed New York & Company Inc. chairman and ceo Richard P. Crystal, who is retiring when his contract expires on Feb. 11. Scott, 47, will become president of the chain on June 1, and ceo when Crystal leaves. Scott will also join the board. The last president of New York & Company was Ron Ristau, who left about a year ago and was primarily an operations executive, rather than a merchant. Crystal, 65, assumed the responsibilities of president without taking the title. <wwd.com/business-news>
Beauty Giants Upping Ad Spending - The giants of the beauty world are priming their promotional pumps as they look to grab market share in an improving world economy. Procter & Gamble Co. attributed part of the 7.4% revenue gain in the third quarter to more aggressive advertising spending, much of it tied to the “Thank You, Mom” campaign run during the Winter Olympics and Paralympics which included 18 of the consumer products giant’s brands. In the U.K., Unilever said its advertising and promotional spend, as a percentage of sales, increased 220 bps in the period and advertising and promotional spending would be “comfortably ahead” for the full year. Revlon Inc. plans to augment sales growth through advertising in the current second quarter as the firm refines its focus “to build the brands we have today,” according to Alan Ennis, president and chief executive officer. The Estée Lauder Cos. said it would increase advertising, in-store merchandising and product sampling by 35% in the fiscal year’s final quarter as the firm seeks to encourage consumers to return to luxury products. <wwd.com/business-news>
Amer Sports Sees Winter and Outdoor Grow, Fitness Decline - Amer Sports Corporation's net sales reached €372.6 mm in the first quarter ended March 31, 2010, up 5% from the same quarter a year ago. Sales rose 11% in the Winter and Outdoor segment and 2% in Ball Sports, but declined 5% in fitness. <sportsonesource.com>
Germany's Metro Group Department Store Profitable - The Metro Group returned to profitable growth in Q1 for the first time since 2008. The German cash & carry, department store, hypermarket and electronics retail group reported net profit of 3 mm euros compared to a loss of 75 mm euros. EBIT more than doubled while sales grew 2.3% <wwd.com/business-news>
Australia's Woolworths Cuts Growth Forecasts - Woolworths Ltd. cut its annual sales growth forecast because of lower food price inflation and the absence of government cash handouts that stoked demand a year earlier. Revenue may rise 3% to 6% vs. Feb. 26 announcement of sales growth in the upper single digits. Australia’s government distributed more than A$10 billion in cash to families in 2009, stoking sales of clothing, groceries and electronics, as the country sought to avoid recession. As Woolworths’ growth slows to below second- ranked Wesfarmers Ltd. for the first time in five years, it’s also seeing food prices rises stop. <bloomberg.com/news>
Japan's CPI Falls 1.2% in March - Japan’s consumer prices fell for a 13th month in March, indicating the economy remains hampered by deflation even as the export-led recovery starts to spread. Prices excluding fresh food slid 1.2% from a year earlier, after dropping 1.2% in February. Bank of Japan policy makers will probably predict today that consumer inflation will improve to at least zero for the year to March 2012, according to 14 of 16 analysts surveyed. <bloomberg.com/news>
Jarden Corp Grows 4% in Q1 – Sales grew 4% to $1.19 bn for the entire company, which operates three other segments that make small kitchen appliances and other home consumer products , including Oster and Mr. Coffee, Ball canning jars, Bicycle playing cards, and First Alert home safety products. Jarden Corp’s Outdoor Solutions segment generated sales of $614.2 mm in the first quarter ended March 31, up 3.9% from $591.3 mm in the same quarter a year earlier. The unit’s brand portfolio includes Abu Garcia, Campingaz, Coleman, K2, Marker, Marmot, Penn, Rawlings, Shakespeare, Stearns and Volkl. <sportsonesource.com/news>
Vail Resorts to Purchase 30% of Specialty Sports Venture - Vail Resorts Inc. agreed to purchase the remaining 30% it doesn't own to take full control of the Specialty Sports Venture group of retail stores. The retail joint-venture includes Boulder Ski Deals, Colorado Ski & Golf and Bicycle Village. Both Tom and Ken Gart will be leaving their leadership positions with Specialty Sports Venture. <sportsonesource.com/news>
Callaway Swings 11% Sales Growth in Q1 - Callaway Golf Company reported that net sales for the first quaretr of 2010 were $303 million, an increase of 11% as compared to net sales of $272 million for the first quarter of 2009. <sportsonesource.com/news>
The Macau Metro Monitor, April 30th, 2010
SINGAPORE NO MATCH macaubusiness.com
SJM CEO Ambrose So said Singapore’s gaming project will be no match for Macau. “I don’t think that it will have too much impact on Macau. Singapore is a financial center and gaming business there is only a part of the overall tourism industry,” he said. He added, “I don’t think Singapore would like to develop gaming business like Macau does, as its main industry,”
NO BLING, NO BUZZ IN SINGAPORE Asia Times Online
The Singaporean government has stringent rules against junket agents. For junket agents, obtaining a license in Singapore requires extensive financial and personal disclosure. Operationally, junket agents need to store full records in Singapore and disclose benefits given to their customers. So far few junket operators have shown interest.
Perhaps the biggest crimp on premium business is the advance reporting requirement. Casinos must report the arrival of junket customers three hours before they enter Singapore. Premium players generally crave privacy, hoping to avoid questions about how much money they have, where it came from and whether taxes were paid on it. But the city-state's rules on junkets run counter to its tax regime. The Lion City taxes premium play at 12%, compared with 22% for mass market gaming revenue, and 39% across the board in Macau.
LVS chairman Sheldon Adelson downplays the lack of junket operators. "We are offering clients credit," he said at Tuesday's MBS opening. LVS president Michael Leven added: "We intend to run this business without junket operators as we do in Las Vegas. Assuming our process works, it will be more profitable."
UNEMPLOYMENT DOWN WITH JOB MARKET ADDING 34,000 MORE WORKERS CNA
Total employment in Singapore is estimated to have grown by 34,000 in 1Q 2010. The seasonally adjusted overall unemployment rate dipped to 2.2% in March 2010 from a revised 2.3% in December 2009.
The service sector gained 31,200 workers in 1Q 2010, compared to 31,500 additional workers in the previous quarter. Manufacturing saw a second consecutive increase adding 3,400 workers after shedding workers over four consecutive quarters, while construction registered a small decline of 800 workers after 20 successive quarters of employment gains since 2005.
“Associate with men of good quality if you esteem your own reputation; for it is better to be alone than in bad company.”
Are you a good or a bad guy? It’s a question that all guys know the answer to, but no guy gets to answer for himself. Unfortunately, in the culture of ‘how much money do you make’ versus ‘how do you make your money’, some of the bad guys in this business are now making us all look bad. Being painted with a broad brush can be frustrating.
Some of the Wall Street You Tubing and email gotchas that have been captured in recent months are just plain un-American. Sure, some of these politicians and financiers can lock themselves in their Connecticut compounds and never be accountable or show their faces, but they definitely won’t be the guys who show their sons the way to survive the risk management exercise of not getting a bloody nose at recess.
What I am looking for in America is for the good guys and gals in this business to rise up above their compensation insecurities and make a stand. It’s one thing to wake up every morning knowing you are a good guy; it’s entirely another thing to have a bad guy pay you off to keep your mouth shut.
I’m Canadian. My son seems like he has a shot at being a good guy. He’s American. Before he has to deal with who is and who is not a good guy in this world, he will be well versed in respecting the history of all the men and women who made this country great.
One of those guys is George Washington and his aforementioned quote about the quality of men speaks for itself. On this day in 1789, Washington was made the first President of the United States of America. He was sworn in at Federal Hall in the city where guys need to start stepping up to the leadership bar now – New York City. To all the good guys on trading desks, offices, and cubicles in NYC, it’s time.
This morning, on the heels of overnight news of a “criminal investigation”, populist crowds are going to be calling out everyone at Goldman Sachs a bad guy. At the same time, Bank of America is downgrading Goldman from whatever their compromised and conflicted ratings mean to something less positive. All of this populism and posturing, when painted with broad strokes, reaches new heights of American hypocrisy.
There are good and bad guys at GS. There are good and bad guys at BAC. There are good and bad guys in your office. There are good and bad guys all over the world. This is not a time to be pointing fingers anymore. It’s time for the good guys to raise their hands, be accountable for the bad behavior of their teammates, and start taking on some real-time responsibility to change this mess.
That’s it. Had to get that off my chest.
Back to Grinding Lemmings:
I shorted BAC in the Virtual Portfolio yesterday, primarily because the math told me too; but also because our head of Financials research here at Hedgeye, Josh Steiner, agreed that these allegations of bad guys doing bad things isn’t just about Goldman. It’s about our profession.
If we are headed down the path of criminal investigations rather than civil ones, I can assure everyone in America of this: there is a small number of criminals working on Wall Street, and they will be smoked out of their holes. Everyone in this business knows who the bad guys are. It’s time.
They can send me hate mail. They can remind me that Carl Levin doesn’t know what market makers do. Been there, done that and I get both. They can do whatever so inspires them to live in the shallow and dark halls of opacity. My front door is open here this morning in New Haven, Connecticut and I employ a full house of good guys and gals who will be standing on the front lines of whatever it is about transparency and trust that they stand against.
We stand for re-building the credibility of America’s financial system. It’s time to lock arms with the good guys of Wall Street and play Red Rover. From New Haven to New York, please stand with us and begin to form the line. As Washington said, it’s time to “guard against the impostures of pretended patriotism.”
Have a great weekend with your families and friends,
This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.