Tomorrow, July 1, 2010.

5-10 minutes prior to the 11 AM EDT start time please dial:

(Toll Free) or (Direct)
Conference Code: 328477#

To access the presentation materials, please click here.


The Hedgeye Macro Team, led by CEO Keith McCullough and Daryl Jones, will be hosting our Q3 Key Macro Themes conference call on Thursday.  As risk managers, we have helped our clients protect capital and stay ahead of global market moves across all asset classes.  


The Q3 Themes are:

  • American Austerity - As austerity measures are implemented around the world, the emerging debt and deficit issues in the U.S. will require an imminent and comparable policy response. 
  • Housing Headwinds - The domestic housing market is faced with another leg down due to a supply and demand imbalance, which will begin to play out in Q3. 
  • Bear Market Macro - Globally, there are a number of key markets that are in bearish quantitative set ups heading into Q3, which will position our tactical asset allocation.

To submit questions for the Q&A, please email .

Hedgeye Macro Team
Hedgeye Risk Management, LLC


McCarran Airport released May passenger traffic down 1.6% YoY. Taking into account an expected low slot and table hold %, we project a 5% decline in Strip.



Today, McCarran Airport in Las Vegas announced that the number of enplaned/deplaned passengers decreased 1.6% in May from last year.  We expect total Strip gaming revenue to fall around 5% on a year over year basis.  Last May, gaming revenue fell only 6.4% which was one of the better months of 2009.  In addition to the tougher (but not exactly difficult) comparison, we have heard anecdotally that MGM may have held pretty low on the tables during the month.  Moreover, slot hold percentage will look low since the last day of May fell on a holiday which means the final day's slot revenue will not have been counted which artificially lowers hold since volume is included.  This also means June will be a catch up month and show a higher than normal slot hold percentage.  In terms of volumes, we think table drop will increase 3-4% and slot handle will fall 7-8%, following the recent monthly trends.


The Strip needs to do better to justify the valuation multiple awarded MGM which seems to price in a V-shaped recovery.  At least from a revenue perspective, we don't think June will be the start of better things to come.  Despite undoubtedly higher slot hold percentage, revenues will look weak.  We do not think MGM held very well in tables in June either.


Here are the projections and McCarran trends presented in convenient and easy-to-read charts:





Bear Market: SP500 Levels, Refreshed...

The intermediate term bear market in US Equities is as bear market does – this morning’s “bounce” can’t be inspiring the bulls.


As is usually the case, the reflexive nature of the US stock market perpetuates the direction of price momentum. Across all 3 of our core Hedgeye Risk Management durations (TRADE, TREND, and TAIL), the SP500 remains broken. 

  1. TREND resistance = 1144
  2. TAIL resistance = 1091
  3. TRADE resistance = 1080 

Confirming this bearish quantitative view are bearish fundamental economic data points. This morning we had 3 that were glaringly bearish in our macro model: 

  1. MBA Mortgage Applications down another -3.3% wk/wk, bringing June to date down to the 172 level (lowest monthly levels since 1997)
  2. ADP’s June Employment report came in way light (13k versus 57k in May)
  3. II’s Bullish to Bearish Survey had no change in the bulls wk/wk and Bears only climbed to 33% from 31% last wk 

Bearish Enough, this market isn’t yet…


That’s probably why our quantitative studies are revealing another lower-low of support (1029) as of 11AM EST.


Keith R. McCullough
Chief Executive Officer


Bear Market: SP500 Levels, Refreshed...  - S P

R3: Sport Apparel In Depth


June 30, 2010


Last week’s sales slowed on the margin, but still strong in the key Athletic Specialty channel. In addition, we continue to see Under Armour’s sales kick it up a notch by printing its second consecutive week of mid-teens sales.





Sports apparel sales decelerated for the second week in a row, taking the 3-week trend down modestly.  No, we’re not alarmed yet. But for virtually all of May and the first half of June, we saw trends accelerating. That’s no longer the case. The SSI sample is far from perfect. But we like that it is consistently imperfect. In other words, the directional indication is something we cannot ignore.  On the plus side, the sports retailers (Dick’s, Sports Authority, Foot Locker, Finish Line, Hibbet, etc…) remain very healthy at around 10%. The weakness is coming from mass channels and family retailers. These channels have far less bearing on the health and underlying trends in the overall athletic space.


As it relates to brands and categories, compression was the key category up 22% and most notably Under Armour posted its 2nd consecutive week of mid-teens apparel sales at retail.


R3: Sport Apparel In Depth - 1


R3: Sport Apparel In Depth - 2


R3: Sport Apparel In Depth - 3 





-  In a trend that we expect will continue to grow state by state, NY State is considering the elimination of its tax free status on footwear and clothing below $110. In an effort to raise tax dollars, tax will be reinstated and then phased out over a multi-year period.  Come April 2011, footwear and shoes under $55 will become tax free, with the eventual return to items under $110 in 2012.


- Bebe isn’t the only retailer collaborating with the Kardashians.  This time the reality TV stars and celebrity sisters will actually have an entire store to themselves.  The first location, called Kardashian Khaos, is expected to open at the Mirage in Las Vegas this August.  The store features an active wear line and women’s athletic apparel developed in conjunction with Bravada International.  If you’re interested in a way to “play” the Kardashian trend, take a look at Bravada’s stock, ticker MFLI.


- In an effort to generate additional revenue for the NYC subway system, the MTA is allowing some of its trains to be wrapped in advertising.  The first major ad campaign is now underway, led by Target in advance of the company’s first Manhattan location opening in July.  The 10 car subway train is covered inside and out with Target branding and imagery.  Given the subway’s current state of affairs it won’t be long before the entire system becomes one of the more prominent advertising venues around. 


- Call it first mover advantage or just common sense, but books remain the most likely item to be purchased online, with 44% of consumers indicating intent to purchase online over the next 6 months.  According to a Nielsen global study, books, followed by apparel/shoes/accessories (36%), airline tickets (32%), and electronics (27%) are the leading categories for sale via e-commerce.





Wal-Mart Puts Its Store Chief In Charge Of E-commerce - Eduardo Castro-Wright is the new president and CEO of, Wal-Mart’s worldwide online retail arm. The move should strengthen's challenge to top web retailer <>  

Hedgeye Retail’s Take:  Shuffling the decks in attempt to reinvigorate growth in the company’s core domestic division may not be a bad idea.  However, with prices already the lowest on the block and incremental traffic hard to come by, we wonder if this isn’t really an impossible task for any executive, old or new.


AEO Leaps Forward with 77kids Plan - American Eagle Outfitters, Inc. announced plans to open seven 77kids by american eagle brick-and-mortar stores, beginning in July 2010. In addition, the brand is launching little77(TM), a new line of clothing and accessories for babies zero to 18 months. The little77 brand will be available online and in the new brick-and-mortar stores, and includes a collection of denim, graphic tees, hoodies, and kid cool fashion items for boys and girls. The first 77kids store will open in Pittsburgh at The Mall at Robinson on July 15, 2010, other confirmed locations are:  Danbury, CT; Bloomington, MN; Cherry Hill, NJ;  Syracuse, NY; Raleigh, NC.

Hedgeye Retail’s Take:  While nothing is new here, we can now actually see the latest concept from AEO.  With ARO, JCG, ANF, and now AEO all investing in kids, it won’t be long before the space becomes as crowded as their grown up teen parents.   


Taylor Made Is Looking For Acquisition Opportunities - Adidas AG said that its unit Taylor Made Golf Company, Inc. is looking for acquisition opportunities, targeting competitors who are strong in women's, senior's, and lifestyle areas. Mark King, head of Taylor Made Golf Company, said, TaylorMade’s revenue will be little changed this year, reiterating an earlier forecast.

Hedgeye Retail’s Take: We question the timing of the article, which is most likely a repurposed view on M&A, coming a day after the company issued a press release claiming its global leadership position. With the acquisition of Ashworth in 2008 helping Adi get to the top, similar deals can be expected as the company fights to maintain its position.


PSS Opens Combined European HQ and Distribution Center - Collective Brands Performance + Lifestyle Group (PLG), a division of Collective Brands, Inc., has opened a new combined European Headquarters and Distribution Center facility in Heerhugowaard, The Netherlands (near Amsterdam), as well as a new London-based product showroom. The facilities support European growth for Saucony, Keds, Sperry Top-Sider, Stride Rite and Robeez. <>

Hedgeye Retail’s Take: Controlling its own distribution is one of PSS’s competitive differentiators and in-line with initiatives over the last 12-months to enhance distribution efficiencies given double-digit growth rates for key brands in Europe.


China and Taiwan Sign Trade Agreement, Tarriff Reductions for Apparel - China and Taiwan signed a trade agreement Tuesday that will reduce tariffs for dozens of textile and apparel categories, knitting and sewing machines and hundreds of other products moving between the two countries. The Economic Cooperation Framework Agreement would tie together two nations with a long history of tensely strained political and economic relations.  <>

Hedgeye Retail’s Take: 10-years ago this would have been a more significant development when Taiwan accounted for nearly 4% of US apparel imports compared to 8% for China, but that the spread has widened drastically (now <1% to 35%+ respectively) over the last decade. After 10-years of share gains, tariff reductions may help to slow, but not avoid the shift in manufacturing out of China in the face of wage inflation.


Denim Workers in Turkey Seek Compensation - Turkish textile workers have staged a three-day protest to demand compensation and rights after contracting fatal lung disease in the local denim sandblasting sweatshops. <>

Hedgeye Retail’s Take:  Another worker protest and another reason to believe wage pressure will lead to higher prices. 


Macy's and Iconix to Benefit from Madonna's Launch of Material Girl - The world’s biggest pop star is gearing up for the launch of her new fashion line, Material Girl, in 200 Macy’s doors on Aug. 3. And this being Madonna, the road leading up to the launch includes a marketing blitz. “I like the idea that the line is being sold at Macy’s because Macy’s has the major accessibility factor across America,” said Madonna of Material Girl, which is the first project from MG Icon, a joint venture among Madonna; her manager, Guy Oseary, and Iconix Brand Group Inc. No matter how well the line performs at retail, Madonna and Oseary get paid $20 mm, plus potential earn-outs, for its 50% interest in MG Icon. <>

Hedgeye Retail’s Take:  With a deal like this we wonder why she even bothers to “gear up”.  Let’s just hope for Macy’s sake the Material Girl still has some fans left to sell her wares.  History suggests celebrity apparel has a short life.


Foursquare Presents Retailers With Unique Opportunity to Interact with Customers - Location-based social network Foursquare and similar apps are all about leading people to do interesting things — and maybe motivating them to make a purchase. Gamelike attributes motivate people to keep coming back. The mobile app senses the location of the user, who “checks in” to various venues and can leave tips, a comment and see who else is there. Users compete to be “mayor” of a place by checking in there the most and unlocking badges based on points. Starbucks was already the most checked-into venue on Foursquare, but the number of check-ins increased 40% to 50% when the company ran a promotion giving mayors of each location $1 off any size frappuccino. Although only slightly more than a year old, Foursquare has worked with Marc Jacobs, Jimmy Choo, Bravo Television, Zagat, MTV, The New York Times, Lucky magazine and Pepsi. The service has 1.6 million users and is growing 50% a month. <>  

Hedgeye Retail’s Take:  Aside from letting the rest of the world know where you are at all times, this combination of a social network and a scavenger hunt could actually add some fun back to shopping.  The real-time ability of a retailer to juice sales via promos to a specific set of consumers is definitely something to watch.   


Rue La La Goes Mobile - The site’s mobile apps allow users to shop the daily offerings from their smart phone as well as bask in the air of exclusivity. Members can post about their latest Rue La La finds to Facebook and Twitter and can use Bump technology to invite friends to the club. In the month since Rue La La’s apps were live, the company saw its mobile sales figures approach 10% of overall sales.  <>

Hedgeye Retail’s Take: A natural progression for the discount luxury retailer, albeit months behind its higher-end counterpart that launched back in April in time for the iPad. Capturing 10%+ of sales within the first month is noteworthy if not impressive though we expect this figure to grow exponentially for these web-based retailer concepts.


Adi's Rockport Gets Nautical with New Offerings - Inspired by its New England seaside roots, The Rockport Co. is sailing into spring with nautical-inspired casual and career looks. Playing off a red, white and blue theme, the Canton, Mass.-based brand is rolling out a collection of breezy ballets, denim-friendly sandals and sexy slings. Set to retail from $70 to $140.  <>  

Hedgeye Retail’s Take:  With boat shoes currently the trend du jour, it was only a matter of time before Rockport played off of its heritage.  We’re just surprised we haven’t seen the brand launch a toning shoe given its ties with Reebok.


R3: Sport Apparel In Depth - 4




The Macau Metro Monitor, June 30th, 2010



Sands CEO, Jacobs, disclosed in a SEC filing that he sold 166,470 shares on 06/25 at $25.78, after exercising options on 250,000 shares at $11.13 and 18,750 at $ 7.73. IM believes this selling was a result of tax planning, not job satisfaction. IM is sure that Jacobs will be beside Adelson in the months to come.


SJM LOSES ITS PR GURU Intelligence Macau

John Catt, head of PR at SJM, has left. He played a critical role in guiding the company through its IPO and building a respected PR department at SJM.


“I believe that misconceptions play a large role in shaping history.”

-George Soros


That was my favorite quote from an important speech that George Soros gave at Humboldt University in Berlin on June 23, 2010, where he warned of many of the misconceptions associated with the credibility of sovereign debt. He is one of the few global macro analysts in this game who got this latest down move right. Well done, Sir Soros. Well done.


Like any great top-down analyst, Soros started his analysis by taking a step back, looking at the timeline of the crisis of confidence in Lehman Brothers. Then he took a step forward, using past market behavior as his guide. This is what we call proactively managing global macro risk with a behavioral bent.


If you wake up every morning accepting that the Officialdoms of Wall Street and Washington are all about storytelling, you put yourself in a much better position to understand that their “misconceptions play a large role in shaping history.”


Soros formally calls this “Reflexivity”…


“Reflexivity asserts that prices do in fact influence the fundamentals and that these newly-influenced set of fundamentals then proceed to change expectations, thus influencing prices; the process continues in a self-reinforcing pattern. Because the pattern is self-reinforcing, markets tend towards disequilibrium. Sooner or later they reach a point where the sentiment is reversed and negative expectations become self-reinforcing in the downward direction, thereby explaining the familiar pattern of boom and bust cycles.” (George, Soros (2008). "Reflexivity in Financial Markets". The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means (1st edition ed.). PublicAffairs. p. 66).


Hedgeye calls this Prices Rule Risk Management. We believe that marked-to-market prices are not only leading indicators for future events; they perpetuate those events. Using this framework, our daily risk management plan is to change the plan as prices change.


Now that stock market prices from China to the USA are hitting lower-lows, you can bet your Madoff that the consensus storytelling on Wall Street will become bearish (this week’s II Bullish to Bearish Survey saw the Bears rise from 31% to 33%, which still isn’t Bearish Enough, but we’re getting there).


Eventually, Washington will follow Wall Street’s lead and start fear-mongering the citizenry into a “Third Depression” so that Professional Politicians can up government spending again. In the meantime, everyone who is long and wrong will just revert to blaming the Europeans and high-frequency traders.


After the 6th US market down day in the last 7 and a fresh YTD closing low of 1041, the SP500 is down -6.6% for 2010. While that’s hardly a YTD down move of consequence when you compare it to the leaders of the 2010 toilet bowl (bottom 3 countries YTD = Greece -33.2%, China -26.8% and Spain -22.6%), the SP500 is finally teetering on what our Hedgeyes call a crash relative to expectations (a peak-to-trough drop of 20% or more).


Since its recent bear market cycle closing high of 1217 on April 23rd, the SP500 has lost -14.5% of its value. With our immediate term TRADE target for the SP500 down at 1018, we don’t foresee a crash coming in the immediate term (1018 would imply a -16.4% correction). That said, with the intermediate and long term TREND (1144) and TAIL (1091) levels in the SP500 broken, anything can happen.


In the US, the biggest misconceptions that we have been hammering on are largely concerning expectations for US growth and deficit spending. Combined, lower than expected GDP growth and higher than expected deficit spending, these 2 factors will continue to play a significant role in shaping the history of markets. History, after all, gets marked-to-market as of yesterday’s closing price.


We’ll go through our multi-factor/multi-duration risk management model in tomorrow’s Q3 Hedgeye Macro Theme Conference Call where we’ll introduce a new quarterly theme called “Bear Market Macro” (email if you’d like to participate). The slide deck will provide you with the kind of macro analysis that market practicioners use, fully loaded with probabilities, ranges, and levels.


Yesterday, we took the market’s weakness as an opportunity to cover some shorts: American Express (AXP), New York Bancorp (NYB), and Consumer Staples (XLP).  On weakness, we bought Under Armour (UA) and the Brazilian Real Fund (BZF), taking our allocation to International Currencies up to 21% from 15% (and our cash position down from 70% to 64%). We like currencies where the government that houses them (China and Brazil) respects the cost of capital.


The US market should bounce today, and you should take that as one more opportunity to take advantage of consensus misconceptions about US growth. Remember, short term bear market bounces can often be more forceful than bull market ones. Our macro model is flashing immediate term support and resistance levels of 1018 and 1085, respectively. Manage your risk around that range.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Misconceptions - soros

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