Sizing Up China

“China is teeing themselves up to take over the financial world.”

-Keith McCullough, June 10th, 2010


Conclusion: China is starting to look interesting on the long side, as the stock market has priced in slowing economic growth.


Bottoms are processes, not points. With the Shanghai Composite down just over 21% YTD, it’s obvious that investors have been discounting what we are starting to see evidence of: slowing growth. At a point, however, that all gets baked into the market and bottomed-out, downward growth expectations begin to shift on the margin towards upward growth forecasts. Combined with the prospects of a simple intermediate-term mean reversion trade (China has underperformed all major equity indices YTD except Greece, Spain, and Slovakia), it’s easy to see why we’re starting to warm up to China on the long side – of course not at every price. We’ll wait for more confirmation of the Shanghai Composite’s higher-low to begin looking for an entry point.


For now, allow the charts below to tell the story on China and what the forward growth outlook is from here.


No surprise here: Chinese equity markets and Chinese demand for copper (as measured by our proprietary Hedgeye China Market Index) have been a leading indicator for growth. As our index would suggest, GDP growth peaked in 1Q10.

Sizing Up China - GDP


The YTD look at the Hedgeye China Market Index suggests that Chinese GDP growth will decline sequentially from its 11.9% peak in 1Q10. The markets have been pricing this in. At a point, what has been priced in will begin surprise to the upside.

Sizing Up China - HCMI


Chinese real estate prices were up 12.4% Y/Y in May – the first sequential deceleration in a year. It appears the peak has been established, which has been priced into the Chinese equity market for quite some time. With peak property price growth perhaps in the rear view, the next question logical question will be where will the current cycle bottom out?

Sizing Up China - Property Prices


To a large extent, the answer to that question will be to watch the Chinese equity markets and the price of copper. With a positive 0.78 correlation (0.61 r-squared) to property price growth for the last three years, our Hedgeye China Market Index should prove to be a reasonably reliable concurrent indicator for the growth of one of China’s main industries. If Chinese property price growth continues to sequentially decline, we expect those declines to bottom out alongside, or shortly after we’ve put in a bottom in Chinese stocks.

Sizing Up China - Property HCMI


Much to-do has been made about the Chinese trade numbers released overnight (Trade surplus – $19.5B in May vs. $1.7B in April; Exports up sequentially – 48.5% Y/Y in May vs. 30.5% Y/Y in April; Imports down sequentially – 48.3% Y/Y in May vs. 49.7% Y/Y in April). Members of the Manic Media appear puzzled that May could produce such large gains in exports – especially with a significantly weaker Euro. Analysis shows, however, that the May 2009’s export growth compare (-26.4% Y/Y) was the easiest “comp” on record. It appears basic math and probability analysis trumps even European sovereign debt scares, or the analytical skills of the Manic Media.

Sizing Up China - Imports Exports


Lastly, a sequential deceleration in import growth is just what the Chinese wanted to see. With what is widely considered an “undervalued” currency, the Chinese are prone to importing inflation. To gauge real-time, we’ve created rolled out our Hedgeye China Growth Commodities Index, which indexes the price of copper, crude oil, and aluminum to the start of the year. The chart below suggests that China indeed imported deflationary commodity prices in May and is continuing to do so in June. No surprise that China’s copper and aluminum imports were down Y/Y in May (-6.1% and -71.5% respectively).

Sizing Up China - Growth Commodities Index


So what does this all mean? You have a government that put the screws to its economy in order to cool growth and it appears the peaks have been established, making it less likely we’ll see more tightening in the near term and likely that perhaps equities have already discounted future slowing growth.


Darius Dale


Crash or Correction? SP500 Risk Management Levels, Refreshed...

The only way to have another stock market crash is for there to be a suspension of belief that we can’t crash again. Markets don’t trade on valuation – they trade on expectations. With fleeting low volume rallies to lower-highs in the past few days, the probability of this correction becoming a crash is going up.


Hedgeye defines a crash as a -20% move from a measurable peak-to-trough. Since the 2008 crash, we have not had one. From the April 23rd, 2010 cycle-peak of 1217 to the June 7th closing-low of 1050, we had an expedited -13.7% correction. The crash zone from 1217 is well below the 1000 line at 974, so keep that reference point in mind. That’s the Pain Trade point for the bulls.


If we hadn’t seen 2010 crashes already in major global equity markets like China, Spain, and Italy, the probability for mean reversion would be lower. If our forecast for another breakdown in the US Dollar based on US sovereign deficit and debt risks weren’t concerning us, the probability for lower-lows versus 1050 would also be lower.


If there weren’t so many ifs in our risk management process, we are not quite sure what we would keep us busy throughout the day. If consensus was Bearish Enough, the SP500 wouldn’t be up 2% today either. From a risk management perspective, nothing of consequence has really changed here today, so we’re still a net seller on strength.


Our long term TAIL line of resistance is now at 1081 and has proven to be a formidable wall today. We see no downside support from here to 1037. From 1081 to 1037 = -4.1%. If that were to happen tomorrow, I think it will definitely get people’s attention and put the crash scenario in play. Lots of ifs…


The monthly US budget deficit for May was released at $136 BILLION DOLLARS. Add that to April’s $83 BILLION DOLLARS and I have $219 BILLION reasons to not trust that the US Government should be entrusted with my hard earned capital being put at risk. Our asset allocation to US Equities remains zero percent as a result.



Keith R. McCullough
Chief Executive Officer


Crash or Correction? SP500 Risk Management Levels, Refreshed... - S P

FL: Hedgeye's Process Unleashed

Despite Keith’s selling of FL in the firm’s virtual portfolio, we remain confident in the intermediate-term opportunities for Foot Locker shares. 



By now, many of our subscribers are aware of our unique process at Hedgeye that marries Keith’s macro and quantitative views with our company-focused fundamental perspective.  Often times our best ideas are born out of the intersection of the two processes.  At other times, there can be a disconnect between us, resulting in opposing opinions.  While Keith’s move here is primarily predicated on his broader view of the market, we want to reiterate that our fundamental view on Foot Locker shares and the company’s turnaround efforts remain unchanged.  We still believe this represents one of the better stories in retail, driven by both strong athletic footwear and apparel tailwinds as well as strategic initiatives put in place by CEO, Ken Hicks and his team.


A second pillar of our process is transparency, which means we’re more than happy and in fact, proud to share our thought process with you in real time.  As such, here’s Keith’s perspective on why he sold his position in FL this morning:


“Stock between a rock and a hard place plus I am bearish on the market… market call with a stock that just broke its TREND line of 14.49 and hasn’t been able to recover it … long term TAIL of support all the way down to $11.81, so I have time to buy it back on any market weakness” - KM


Importantly, Keith’s selling of the FL position in the firm’s virtual portfolio does not change our key view on the opportunity for the shares, which we highlight below:


We continue to believe the COMBINATION of Foot Locker specific drivers such as improved apparel assortments, distinct banner segmentation, and inventory management will ultimately lead to a continued string of upside over the next several quarters.  Importantly, the company’s recent 1Q results were the first reported since Ken Hicks unveiled the company’s strategic plan on March 9th.  We remain confident that management is conservative with its forecast on both the top and bottom lines, preferring to use a still “uncertain economic” backdrop as a reason for which to be reserved. 


While management may be conservative, we remain aggressive both on the opportunity to see meaningful earnings upside over the next couple of years as well as the commensurate opportunity for share price appreciation.  Our estimates remain comfortably ahead of the Street for this year at $1.05 vs. $0.87.  We’d continue to use the market weakness and jitters to revisit the intermediate term opportunity.  As stated above, we suspect Keith will also be revisiting at some point as well.  


Eric Levine


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The Macau Metro Monitor, June 10th, 2010


Wynn Macau COO Linda Chen said that she believes GGR will exceed the forecast of 30% growth but still sees a slowdown in the 2nd half of the year.  Chen said she expects the VIP market to grow at a faster rate than the mass market segment, contrary to comments from SJM (see note below).  She does not think the weak stock market and tight monetary policies could affect VIP gambling revenues in the second half.


Meanwhile, Steve Wynn said its mega resort on Cotai could break ground next year.  He added that the project could have 1,200 to 1,300 slot machines and be ready by 2014.  Wynn said he will be "splitting the headquarters" of Wynn Resorts between Las Vegas and Macau.



Frank McFadden, president of SJM's joint venture and business development division, said gaming revenue growth will slow in the 2nd half as wealthy Chinese take a hit from a weak stock market and tight monetary policies.  "We see a softening in the VIP market and continued growth in the mass market. The VIP gaming market has been driven by a rising asset base in China and a rising stock market in China."  McFadden believes if VIP slows down, even though mass continues to accelerate, overall gaming revenues in June will decline sequentially.  McFadden said the 2nd half could see 60% of SJM's revenues come from the VIP segment, down from 65% in the first quarter. 


SJM continues to take a 'wait-and-see' approach on Cotai.  McFadden expects SJM to have around HK15 billion in cash by the end of 2010.  He stressed that the strong cash position would help the company secure a prime location on Cotai if the government takes back some of that land.  "We're a bit cautious because the level of equity that you'll need to invest will be high in order to compete," he said.  If SJM does build a property on the Cotai Strip, it could predominantly be geared towards gaming.  McFadden said that "95% of spend here is gaming when the visitors come.  It would be arrogant to think that by building what they call an integrated resort, you can change the consumer behaviour of 1.4 billion people." He added that he wasn't aware of any talks between SJM and Sands or Studio City about a land deal.


The Cotai integrated resorts will create “15,000 to 17,000 job opportunities in the next 18 months,” said CoD president Greg Hawkins. Hawkins said that City of Dreams currently has around 8,000 employees, while The Venetian has more than 10,000.  The vacancies could be good news for the 9,600 residents unemployed in Macau.


Hawkins said the SAR Government “has always been very open” to the demand for non-resident workers. The key will be getting the balance right."


Meanwhile, Galaxy IR, Peter Caveny, is optimistic on the Guangzhou–Zhuhai Intercity Mass Rapid Transit (MRT).  He predicts the rail will bring 400,000 people a day to Macau when it opens this November.



Bally Technologies is targeting to supply 20% of the total slot machines to Sands China’s parcels 5 and 6 and Galaxy Resort.  “If they open with 1,500, we would expect to get 20% of the order,” Cath Burns, vice president for Bally Technologies’ Asia-Pacific operations, told Reuters, referring to Sands China´s projects. “Same with Galaxy — that’s what we are targeting with both groups now.” 



The ban on smoking inside casinos could lead to a 20% drop in gaming revenues, the president of American Gaming Association (AGA) Frank Fahrenkopf told reporters during G2E Asia.


Meanwhile, Taiwan will conclude legislation on gaming by 2012. However, lawyer Benjamin Li told Lusa, that just like Singapore, Taiwan should not issue more than two licenses.


Universal Entertainment Corp, a Japanese pachinko game maker and the biggest shareholder in Wynn Resorts, plans a HK IPO  within three years for a unit that is building a $2.7 billion, 99-acre Manila casino resort.  "Universal Entertainment aims to lure VIP players from China to the Manila resort," said Kazuo Okada, Universal Entertainment's Chairman.  The first phase of the resort will include a casino, a hotel and an aquarium. The completed project will include two casinos, two hotels and a residential building and may be finished within five years, he said.


Companies are attracted by the Philippines' lower tax rates.  “Our gaming tax is lower than Macau and slightly higher than Las Vegas,” said Rafael Francisco, President of Philippine Amusement and Gaming Corp. Licensed casinos pay 25% gaming taxes, along with a corporate income tax for entertainment and other non-gaming income, he said.



R3: Retail Pulse – June Update


June 10, 2010





In light of mixed commentary on sales trends coming out of May, we took a look at the latest wave of comments coming from company management teams.  While the majority of retailers noted the final two weeks of May showed improved trends, largely driven by better weather, did this last into June?  Most recent comments suggest positive trends have held.  However, to be fair and as Keith reminded us this morning on our call, what is the incentive for a management team to update the Street with bad news?   We agree that this is in some ways a biased sample set based on those companies willing to toot their own horn, but the reality is there is a diverse group of retailers seeing positive momentum in early June.  Yes, we know the calendar shift helps, but this is also widely known at this point and fully incorporated into company plans.  More importantly, we’re reminded once again that the sector and underlying health of the consumer on any given week can be quite volatile.  For now though, the consumer appears to be holding up, at least from a retailer’s perspective.

  • 6/8/2010- Coach’s CEO: “First, the growth that we experienced in the third quarter -- our third fiscal quarter ending in March has continued through the first two months of the current quarter. We are enjoying very healthy growth in our North American businesses, in our international businesses, led by China.”  Recall that F3Q North American comps increased by 5.1% and by “significant double-digits in China”.
  • 6/8/2010- Dollar General recently reiterated that the company still expects same store sales to be in the 4-6% range, which is consistent with the company’s view back in March.    First quarter same store sales were up a better than expected 6.7%.
  • 6/8/2010- Talbot’s management noted, “we're only half way through the second quarter, and our comps for the quarter are in the mid single digits.”  Current trends mark an acceleration from 1Q reported comps of 2.4%.
  • 6/8/2010- Sherwin Williams CFO comments: “I think we still feel pretty good about our guidance for the second quarter. We had not updated. We said we'd be in the high single digits. I think we feel it's relatively strong.”  Why he “thinks” things are relatively strong rather than “knows” is an entirely different question.  However, it sounds like business has held up.
  • 6/8/2010- New York and Co. CEO comments: “To give you some perspective, we entered the spring season with low inventory levels. We saw business improving as we went through March, and we were encouraged by this. We chased some inventory, as one of our priorities was to drive comparable store sales increases. We thought we saw consumers returning. To do this, we needed right levels of inventory, so we pursued- aggressively chasing some categories of merchandise.  And as we had seen improvement in the first quarter, by the time we got to late April, early May, as we mentioned, we saw some softening. We had some big promotions planned for end of May, and also a merchandise group that was to come in the end of May. That group was disappointing, as well as the promotions, and especially in the T-shirt, Dress and Short category, where we think that we got too young and too forward in terms of fashion.”  Self inflicted for sure, but still a noteworthy outlier.
  • 6/8/2010- The Children’s Place comments: “We gave guidance when we announced earnings (5/20), and we're confident in the guidance that we gave. We're early on in the quarter to really call it other than-- any differently than we had seen when we gave the guidance. We're comfortable.  And just for those of you that don't know, we did guide to a low, single-digit comp for the quarter.”  Recall that 1Q comps declined by 0.5% and a low single digit increase would mark a sequential improvement.
  • 6/8/2010- Cache comments: “And we talked again about the development of the process at the end of our first quarter conference call and validated that, indeed, we were seeing positive comps for the first time in the Company consistently from March onward. I'm please to say and announce, because we are on a webcast, that our May results were the strongest results that we've had in quite some time. The Company has had seven consecutive of negative comp store sales. So we've turned the corner.”  No official comment on June, but sounds positioned to keep positive momentum alive.
  • 6/8/2010- Urban Outfitters noted in its 10-Q filing that “thus far during the second quarter of fiscal 2011, our total comparable retail segment net sales remain favorable as compared to the prior year comparable period."  Recall that 1Q comps increased by 11%.
  • 6/8/2010 – Oxford Industry’s CEO: “So we're very happy with our business in the last few weeks, and very happy about the prospects in the back half of the year.” After a strong Q1 it sounds like sales may actually have accelerated in recent weeks. Additional commentary suggesting that bookings for the company’s recently launched holiday line have been “very, very strong” are also unequivocally positive.
  • 6/8/2010 – Phillips Van Heusen CEO: “Our retail comp trend has only accelerated as we've gone through May and strengthened towards the end of May, going in June. For the first six weeks of the quarter, our comps are running about plus 13% in the United States.” As a point of reference this compares to 12% comps in Q1. Manny continued to assert that “All of our sportswear businesses are on or ahead of planned at retail. Fall orders are very strong and holiday orders are very strong, so we feel very good about our sportswear business. And our Calvin Klein businesses continued to accelerate. In the first quarter, our licensing revenues were up about 32%. We see that trend continuing into the second quarter.” There was zero ambiguity that business is clicking on all cylinders thus far in Q2 for PVH.
  • 6/8/2010 – Guess CFO noted that they have not seen indications of business rolling over yet in Italy and that May “continued to be very strong in Europe with very strong comps.” More notable was Dennis’ perspective on the Italian consumer largely dismissing sovereign debt concerns stating “We are less concerned maybe about the Italian consumer behavior because we know that consumer savings and family savings are really high in Italy. Italian families are not in debt. The country is in debt, but not the families.” Last we checked – as the country goes, so does its consumers Dennis.
  • 6/8/2010 – Deckers Outdoor COO remarked that  on the topic of retailer demand, with fall bookings complete there will be little indication of mid-quarter demand aside from Nordstrom’s anniversary sale in June.
  • 6/9/2010 – Cabela’s CEO commentary around recent trends was focused around the success of its new smaller format (75,000 sq. ft. vs. 150,000+ avg.) store in Grand Junction Colorado, “I can tell you that thus far, now three weeks is not a trend, but that store has met or exceeded all of our expectations.” It was also mentioned that bigger ticket items are at a minimum stabilizing and no longer deteriorating.
  • 6/9/2010 – Big Lots CFO: “the 6% comp we posted in the first quarter, and a 4% to 5% comp that we have guided in the second quarter is certainly an acceleration that we are pleased with. we are not sure how the consumer will respond in the back half of the year. And you look at the last couple of weeks and we are very hopeful.” Not exactly hard evidence of improved trends, but there’s something to be said for not backing off expectations too.
  • 6/9/2010 – Collective Brands CEO: With near term trend discussions focused primarily around the toning product, Rubel noted that sales are “doing great. So as soon as we get them in, they sell out. So we will continue to flow the product.”  He went on to say that they are actually increasing flows as the company looks to ramp toning from ~1% of sales in Q1 upwards of 4% of sales by Q4.
  • 6/9/2010 – Crocs CFO: “our same-store comps are showing up 4% in April and up 5% in May and then up, so far, in June. For the first nine days we're up 14% in June.” While more favorable weather can be thanked for some of the acceleration in June comps, this was the most notable pick up from any retailer over the last few days by a long shot.

Eric Levine

Casey Flavin





- According to a 2010 survey by WPP, Burt’s Bees and Whole Foods top the list of 10 U.S brands perceived to be the greenest. Other brands in order include, Tom’s of Maine, Trader Joe’s, Google, Aveeno, SC Johnson, Publix, Microsoft, and Ikea. The survey also found that 60% of consumers worldwide want to purchase products from environmentally responsible companies. However, in the U.S., 80% of respondents said they are more concerned about the economy than the environment.


- While there are few retailers without an e-commerce presence, fast fashion brands H&M and Zara are among the minority. However, Zara just announced it will be launching ecommerce this Fall, with a focus on key European markets. Unfortunately for U.S consumers, there is currently no site in the works.


- Even if soccer (football) isn’t as popular here in the U.S as the rest of the globe, there’s no question retailers are looking to capitalize on the World Cup hoopla. In fact, shipments of soccer balls to the U.S from Asian factories nearly doubled the monthly average in May. With this in mind we expect to see many more people out kicking a ball around to get in the World Cup spirit.





Guangdong Shoe Exports Grow 25% in April, Export Price Down 6% - Guangzhou Custom in China announced that the Province exported 360 mm pairs of shoes in April, reflecting a year-on-year increase of 25% and a month-on-month growth of 35%. The average export price was US$2.3 per pair, down 6% year-on-year. In the first four months of this year, the province's footwear export volume reached 1.32 bn pairs, up 19% year-on-year, and the export value increased by 10% year-on-year to US$3.43 billion. The average price was US$2.6 per pair, 7% less than in the corresponding period of 2009. <>


By Design Acquires Majority Stake in Denim Label David Kahn - Knitwear maker By Design LLC has acquired a majority stake in David Kahn for more than $10 mm and hired a new chief executive officer for the premium denim label. By Design, a New York-based manufacturer that generates annual volume of $200 mm in private label tops sold at retailers, including Nordstrom, Kohl’s and J.C. Penney, purchased the trademark and assets of Los Angeles-based David Kahn. It now owns a 90% stake in the firm, which was founded in 1999 and tallies annual sales of $15 mm at more than 1,100 doors in the U.S. and Canada. <>


AEO Heads to China - Seeking to capitalize on China’s consumer spending boom and a perceived void in the teen market, American Eagle Outfitters Inc. said Wednesday that it will open stores in Hong Kong and China through a franchise agreement with Dickson Concepts (International) Ltd., which operates more than 400 stores in Asia. AEO will unveil three stores in Hong Kong, Beijing and Shanghai in early 2011. American Eagle will offer the brand’s complete seasonal assortments, intimates and dormwear from the aerie sub-brand. The only concession to consumers in the region will involve size. “We won’t change the assortment, but we may alter some of the styling and colors,” said Christopher Fiore, executive vice president of AEO International. The U.S. retailer will provide merchandising and marketing input, and Dickson Concepts will handle all operational functions. <>


Target Announces Store Makeover at Shareholder Meeting - Target Corp. is aiming to upgrade the stores to build upon the momentum of last year, when the firm generated the strongest retail segment profit in its history. Gregg Steinhafel, CEO of TGT said, “The changes beyond food are so extensive, they resemble a brand new store.” He said there will be renewed emphasis on “more open, visually compelling departments.” In the beauty department, there will be efforts to “upgrade the environment so customers feel like browsing,” rather than just popping in to buy a tube of lipstick and heading out the door. Footwear is also changing with gondolas closer to eye level, and more mirrors and seating have been added with backdrops of seasonal product. While children’s wear results have been disappointing, the use of a more friendly color palette in kids’ departments has started to turn things around, aided by merchandising that, through mix-and-match presentations, makes it easier for parents to match tops with bottoms. <>


UK Home Improvement Retailer Home Retail Group Plc Sees Sales Worsen in Q1 Due to Weak Consumer Spending on Video Games & Televisions - The U.K. owner of Argos catalog stores and the Homebase home-improvement chain, said sales worsened in the first quarter as consumers pared spending on video games and televisions. Argos outlets comps declined 8.1% after comps declined 2.2% in 2H of 2009. Sales of video games slumped 20% in the quarter while the overall TV market “has not grown at all,” despite the World Cup soccer tournament, which begins tomorrow. Home Retail is adding product ranges, broadening its online offering and limiting store openings to drive profit. <>


Nike Promoting Basketball in World Festival - This summer, Nike, Inc. and USA Basketball are launching the inaugural World Basketball Festival, a four-day celebration of the performance and culture of the game, an event that Nike has committed to reprising every two years. The event, to be held in New York City, will feature some of the world's best basketball teams and top musical performers. <>


Adidas and DC Comics Partner to Create Superman-inspired Merchandise Featuring Dwight Howard - Adidas has partnered with Warner Bros. Consumer Products and DC Comics to create a Superman-inspired line of merchandise featuring the iconic superhero and NBA All-Star Dwight Howard of the Orlando Magic. Howard, whose athletic persona has been compared to the Superman character, said in a statement, “I’ve always been a big fan of Superman and to be able to team up on this new line is a dream come true.” The holiday ’10 line will consist of footwear and apparel, to be distributed globally at department stores, sporting goods shops and stadium shops.  <>


Chinese Shoe Maker and Retailer Anta Sports Expects Q4 Growth to Exceed 25% - Mainland Chinese biggest sports shoe maker Anta Sports Products expects its order book value to grow more than 25% in the fourth quarter of this year. Due to an improved product mix and quality materials, the brand saw the average selling price for footwear and apparel rise more than 5% from a year earlier at its trade fair held in May. Anta will launch a series of marketing campaigns in the fourth quarter ahead of the Asian Games. Its sales growth is expected to be between 15% and 20% in 2010 because the company will open more stores. Anta, which is based in Jinjiang, Fujian Province, plans to increase the number of its outlets by 9% to 7,200 this year <>


FitFlop Launches Toning Clog - FitFlop is launching its own clog version this week. Its patent wellness clog, called Happy Gogh, comes in five colors — poppy-red, berry-red, blue, plum and black — and retails for $119 exclusively through Kirna Zabête in New York. “Clogs are really hot, and we needed them to be available now,” said FitFlop founder Marcia Kilgore at the brand’s London press day last week. Kirna Zabête has already amassed a waiting list for Happy Gogh on its website. The retailer is offering 1,000 pairs starting this week, and U.S. retail distribution is set to widen in August. <>


Social Media Tactics: Offer Coupons or Rally Consumers Around Special Events - The brands that have enjoyed the most success using social media to drive consumers toward purchases follow one of two paths: Either they offer coupons or discounts, or they position themselves in front of consumers during sales or other special events, according to eMarketer. One-quarter of respondents to a survey conducted by Chadwick Martin Bailey said that coupons and discounts were the primary reason they became fans of a brand on Facebook. An additional 21% said it was because they were already customers. Another survey, by Morpace, found that 37% of Facebook users joined fan pages because they wanted to get coupons and discounts.


R3: Retail Pulse – June Update - 1


Social Media Growth Road Map - Social network usage rose sharply in 2009, thanks to the ever-increasing popularity of Facebook. eMarketer estimates that 57.5% of Internet users, or 127 million people, will use a social network at least once a month in 2010. By 2014, nearly two-thirds of all Internet users, or 164.9 mm people, will be regular users of social networks. Adults will continue to increase their use of social networks, driving most of the growth in the next few years. This year, 59.2% of online adults will visit regularly, up from 52.4% in 2009. By 2014, 139.6 mm US adults will be regular users, up 56% over 2009. Teen usage, already very high, will increase at a slower rate. In 2014, 21 mm teens will use social networks on a monthly basis, up 19% compared with 2009. <>

R3: Retail Pulse – June Update - 2 


Brazil World Cup Fever Fashion - The fact is that it is not just a question of football or soccer in Brazil. It is also a question of fashion molded by famed Brazilian flair and colored by the hues of its national flag. Optimism is high in Brazil not only with its great selection of players and original fashion but also by the Brazilian GDP growing by 9% in the first quarter of 2010. The national colors are prevalent in the latest products to hit the high street characterized by the blue, green, yellow and white of the national flag.  Here is a small selection of footwear, socks and bags which reflect the country’s mood and its team strip as the XIX FIFA World Cup kicks off on Friday, which grip the  country for one whole month.  <>

R3: Retail Pulse – June Update - 3



Initial jobless claims remain high. The reported number dropped 3k to 456k this week, but that's after revising the prior week up by 6k. Net of this revision, claims actually rose this week by 3k. Either way, the bottom line is that claims remain in the ~450k range. Rolling claims actually climbed 2.5 to 463k week over week. Remember, we need to see initial claims fall to a sustained level of 375-400k in order for unemployment to fall meaningfully and, by extension, lenders' net charge-offs to return to normalized levels.  We remain well above that level.  


JOBLESS CLAIMS STILL STUCK AT ~450K - rolling claims


Below we chart the raw claims data. 




As a reminder (as was made vivid in last Friday's jobs report), May was the peak month of Census hiring, and it should now be a headwind to jobs from here as the Census winds down.  




Joshua Steiner, CFA


Allison Kaptur

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