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Let's face it, ASCA has been on the "for sale" block for 3 years.



Since Craig Neilsen died in 2006,  Ameristar has been on sale; maybe not formally but for all practical purposes.  If there was a corporate casino buyer, we'd bet that ASCA has already talked to them.  Hiring an investment bank, to some extent, may be an acknowledgment that PENN, BYD, nor Genting were interested and the talented bankers at Lazard will have to hit the pavement aggressively to find a buyer.  We're not saying they won't succeed but the premium to today's stock price may not be great.


ASCA currently trades at 7.5x our 2011 EV/EBITDA estimate, a slight premium to PENN and a huge premium to PNK.  PENN's leverage is half of ASCA's and its growth profile dwarfs that of ASCA.  PNK trades at a 1.5x turn discount to ASCA, indicative of a solid takeover premium implicit in ASCA.


It is conceivable to us that ASCA could be worth 8x or $19 in a takeout scenario, 16% upside from here.  However, let's not forget about the time value of money, which is always important in gaming deals.  Due to licensing and jurisdictional approval requirements, gaming transactions take more time to close.  Moreover, most private equity firms are not licensed in ASCA's jurisdictions and some of the major PE players in gaming have already been burned (Harrah's, Station, Aztar, PENN, etc). 


Assuming 6 months to find a buyer and reach an agreement and 9-12 months to close, 16% upside does not seem so juicy, and that's assuming a buyer can be found and the deal can be closed.  We'd handicap those odds below 50%.


The Macau Metro Monitor, August 12th, 2010


DIRECT PLAY Inside Asian Gaming

IAG believes the difference in LVS's rebate rate in Macau (0.9%-1%) vs in Singapore (1.2%), and Singapore's lower taxes give LVS incentives to shift its Macau DIrect VIP players to Singapore.  But a source familiar with the VIP trade around the Asia Pacific region said, " A lot of high rollers travel regularly around the region for business and may have a home in more than one city. For them, it may not be a choice of playing either in Macau, Melbourne, or Singapore. It may be a case of the more destinations they have to try their luck, the better."  Nevertheless, IAG thinks credit risk in Macau and the Lion City factor would cause LVS to realign its Direct VIP business and focus on Singapore. 


Also, IAG had reported some Macau junkets were offering 0.2% of a player's rolling turnover to third parties in order to convert Direct players into junket players.

A TALE OF TWO CITIES Inside Asian Gaming

SJM-licensed Taipa casinos--Greek Mythology (New Century), Macau Jockey Club Casino, and Grandview-- are significantly underperforming in revenue terms.  Their 200 tables (almost as many as Grand Lisboa) could boost SJM's profitability if at least some of the mass tables were reassigned to busier floors on Taipa.  The presence of those 200 SJM tables in Taipa gives SJM and affiliates coverage in the southern part of the Macau market.  The Government's position so far has been to restrict any further expansion of gaming in suburban areas.


The mass market prospects of Greek Mythology have been overlooked by Ho family interests in order to focus on Altira. The 16 VIP tables at Greek Mythology actually outperformed relative to Altira, but its 100 mass tables are often empty. 



Sands China said a worker shortage will delay the opening of its Cotai resort to 4Q 2011 from 3Q 2011.  "That [delay] will affect the ramp-up of the product and will affect the short-term income situation. But the cost of the product will be the same," acting CEO Michael Leven said.  "Sands China has 1,293 workers (mostly locals) at its project," Leven said.  "We're about half the amount we needed for this particular time," he said, adding that the firm would need 10,700 workers (30% locals) at its peak. "We expect over the next six weeks to get closer to our goals."  In addition, Leven said the name of its Cotai project could be decided by September.


As for the search of Sands' CEO, Leven hopes to find a replacement by the end of the year, adding that it is hunting externally for someone with Asian experience, particularly in China, among other traits.  Leven also wants to bring in more junket play without increasing the commissions.



IM is not expecting much from Dragone.  According to an IM survey, less than 1% of visitors at the border points said a show, e.g. House of Dancing Water, was something they would consider.  House of Dancing Water ticket prices go for MOP 400 and the average stay for a Macau visitor is only 1.5 nights.



IAG believes the process of localization will take time in Macau and that Galaxy and Sands will raise construction sector wages to attract locals from other sectors--a wage fight that could lead to an upward inflationary spiral. In addition, according to sources, casino dealer jobs, pit supervisor and pit manager jobs are reserved for permanent residents, which force locals to attend higher education.


A GROWING GAME Inside Asian Gaming, Hedgeye

Lindsay Stewart, VP of Electronic Gaming, SJM: "Not all our slots are systemized yet. Once that happens, we hope within 12 to 18 months we will have far more firepower in terms of being competitive with these big guys.... There's one manufacturer [Aristocrat] that still holds sway."


Peter Johns, Director of Slot Operations, MGM Macau: "We constantly get slots at around 20% now of the mass floor revenue (July 2010: 23.7%).... At my last count there were 23 vendors selling machines in Macau. Most operators stick to the top six [manufacturing] names."


Darrin Carlson, Slot Manager-operations Sands China:

"Slots will progress just like they did in Las Vegas."



The joint statement by Marina Bay Sands and IPBA stated that the suits will be discontinued as part of an amicable, confidential settlement.

R3: Basketball Getting Worse. Really?


August 12, 2010


While there is no question basketball has been weak for some time now on an absolute basis, our weekly scan data suggests the trend has actually improved sequentially over the past three months.  





There’s been some noise in the marketplace suggesting the basketball footwear category has eroded over the past few months, especially in the athletic specialty channel.  While there is no question basketball has been weak for some time now on an absolute basis, our weekly scan data suggests the trend has actually improved sequentially over the past three months.  Weak or not, we believe the opportunity for the category (against easy compares) is becoming even more exciting.  This comes on the heels of an inevitable investment in product by Nike to support Miami’s “big three” and as Under Armour prepares to launch its hoops product in October.  And, while Reebok hasn’t been on the basketball scene since AI entered the league, there is some promise with the signing of John Wall and a line built off of the Zigtech platform.


Importantly while basketball is just one part of Foot Locker’s merchandise mix, this data does support our positive stance on the upcoming quarter.  While we are conservatively forecasting a 4.5% comp increase (could be upside from Europe driven by successful World Cup sell-throughs), we believe margin trends will be solid given tight inventory levels entering the quarter as well as another quarter of benign promotional activity.  Our model is looking for $0.13, well ahead of the $0.03 consensus.  FL reports next week on August 19th.


R3: Basketball Getting Worse. Really?  - BBall 1


R3: Basketball Getting Worse. Really?  - bball 2





- Macy’s noted that back to school selling has been “very encouraging”. In particular, the company’s recently launched Material Girl line (in collaboration with Iconix, Madonna, and her daughter Lourdes) has been posting strong initial sell throughs. Management also believes the buzz surrounding this line is also helping to boost traffic beyond the brand itself.


- Keep an eye on the state of California which is soon to bring a bill to the senate which aims to ban the plastic bag. With a clear focus on the environment, the bill which already passed the Assembly would make CA the first state to ban retailers for using plastic. Looks like paper or BYO if passed.


- As JC Penney prepares for the launch of its Mango shop-in-shops, the Spanish retailer is looking accelerate its growth plans globally. The family owned business is planning to open a store per day over the near-term, with an eye on expansion in China. With 1,500 stores currently, this growth rate puts the fast fashion retailer in rare territory for concepts that are still looking add meaningful square footage.





June Apparel Imports Rose 36% - Led by major gains from Asian countries, textile and apparel imports to the U.S. surged in June, as retailers restocked inventories. Combined shipments of textiles and apparel to the U.S. rose 36.1% driven by apparel imports growth of 25.8% and textile shipments growth of 45.1%. Combined textile and apparel imports from China (#1 supplier) spiked 52.4%, India (#2 supplier) increased 32.6%. The top five apparel suppliers to the U.S. in June were: China, Vietnam, Bangladesh, Indonesia and Honduras. China was also the top textile supplier, followed by Pakistan, India, Mexico and South Korea. <wwd.com/business-news>


R3: Basketball Getting Worse. Really?  - apparel margins 1


R3: Basketball Getting Worse. Really?  - apparel margins 2 


Li & Fung Acquires US Footwear Brand Jimlar - Hong Kong-based sourcing giant Li & Fung Limited confirmed Thursday that it has acquired U.S.-based footwear maker Jimlar Corporation, confirming a July report in these columns. LF USA is nearing a deal to acquire Jimlar Corp. for $450 million. Jimlar is a privately held firm that owns the Frye trademark and does business through licenses such as Coach and Calvin Klein. A price was not disclosed in Thursday's  announcement and the company could not be reached for comment at press time. <wwd.com/business-news>

Hedgeye Retail’s Take:  As expected, Li & Fung continues its shopping spree, but this time with an acquisition of some content.  Recall earlier in the week the company acquired a transportation logistics business in an effort to take more of the logistics process in-house.


Gap Inc. Expanding Global E-commerce Reach - Gap Inc. said its e-commerce capabilities will extend to 65 countries by year end. The international Web push marks the e-commerce debut of Gap, Banana Republic, Old Navy, Piperlime and Athleta outside of the U.S. With the expansion, Gap’s online presence will touch more of the globe than the company’s brick-and-mortar stores. Gap is in five countries with company-owned units and 20 with franchised units, while Old Navy has no stores beyond North America. Gap has partnered with FiftyOne, a New York-based e-commerce specialist, to develop the online infrastructure needed to support a Web business around the world, with the exception of China. For China, Gap is working with Shanghai Yi Shang Network Information Co. Ltd. to provide e-commerce starting this fall. Gap’s e-commerce business was $295 mm in Q1 up 11%. <wwd.com/business-news>

Hedgeye Retail’s Take:  A no brainer given the platform is in place and the cost to build out has dropped substantially as technology advanced.  Makes a ton more sense than opening stores across the globe.


Celebrity/Proprietary Brands Squeeze Independent Labels - As retailers seek to add more celebrity and proprietary brands, there’s no end in sight to exclusive pairings. And it’s getting a lot tougher for other labels to compete. Brand exclusives and private label are increasing their share of big-store real estate, commandeering dedicated advertising and promotional support, not to mention buying dollars. If a store has two brands that are similar, and one is an exclusive, there's plenty of reason to leave one out. With department stores narrowing the number of vendors they carry, those brands without an exclusive will have a much harder time competing. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Exclusivity has been a trend for the past several years and this is nothing new.  Note to vendors:  Produce a line consumers want and they will pay full price for it. 


Li-Ning USA and Champs Sports Team Up - Li Ning Company Limited and Champs Sports have announced their partnership in the U.S. launch of the Baron Davis sportswear collection. Beginning on Friday, August 13, the “BD Doom” line of footwear and apparel will be available in select Champs Sports stores, located primarily along the west coast. Named after and designed in part by NBA All-Star Baron Davis, the BD Collection includes both performance and lifestyle footwear and attire.  The assortment will also be offered online at Champssports.com and Eastbay.com, both divisions of Foot Locker, Inc. Champs Sports is the first U.S. retailer to partner with one of China’s most popular sportswear companies. <sportsonesource.com>

Hedgeye Retail’s Take:  Well within the realm of our expectations, this marks yet another exclusive partnership for Foot Locker under new leadership.  While the partnership with a Li Ning is interesting on its own merits, the exclusivity with Champs/Eastbay is just a small part of FL’s strategy to differentiate and ultimately regain market share.  We expect to see similar deals coming over the next 12-18 months.


Nine West Steps Into M-Commerce - Consumers can use the shoe retailer’s mobile site to access the complete catalog of products found on the Nine West e-commerce site. Shoppers also can buy products and access accounts that contain default payment, billing and shipping information. <internetretailer.com>

Hedgeye Retail’s Take:  Newsflash.  M-commerce is essentially e-commerce when you’re not at your desk.  At some point soon, m-commerce launches will no longer be newsworthy, but rather just a part of normal retail activity.


Timberland to Expand Green Index to All Footwear by 2012 - The Timberland Company plans to expand its "Green Index" to all its footwear by 2012. <sportsonesource.com>

Hedgeye Retail’s Take:  While once a gimmicky marketing ploy, it is clear consumers actually do care where there products come from and how they are constructed.  TBL remains on the forefront of the “green” movement, an area in which the overall footwear industry has a long way to go.


UK Ethical Tradition Initiative Calls Upton Bangladesh to Increase Minimum Wage - The Ethical Trading Initiative has backed calls for the Bangladeshi government to make a further increase in the minimum wage. <drapersonline.com>

Hedgeye Retail’s Take:  While the wage debate continues in Bangladesh, there is no denying prices are on the rise as labor heads higher.


Brazil Reaches 1 BN in Leather Exports Despite July Decline - Sales of the Brazilian product grew by 74% in the first seven months of this year as compared to the same period last year and is expected to reach US$1.7 billion in exports by the end of this year, according to the Confederation of Hides and Skins Industries. Brazilian leather exports totaled US$ 1 billion from January to July. Despite the growth in exports during the period, sales in July dropped by 13.3% as against the previous month. The reduction was a consequence of financial problems faced by international markets, especially the European Union. <fashionnetasia.com>

Hedgeye Retail’s Take:  Keep an eye on Brazil as a leather source as China looks to cut capacity in an environmental effort to eliminate toxic factories. 


Despite Fewer Internet Users than Men, Women Spend More Online - According to comScore’s “Women on the Web” white paper, women account for just less than half of US internet users but make up a disproportionately large share of online buyers, at nearly 58%. Their share of transactions is even higher, with more than 61.2% of online purchases made by women. They also spent more than men, accounting for 58.2% of the total, suggesting men tend to make fewer purchases of bigger-ticket items, while women are more frequent buyers with a lower average order value. In the US, women dominated most in the online market for fashion and jewelry, toys, housewares, books and other entertainment, and even video games. Around the world, comScore found that women spent 20% more time on retail sites than men. Reach of most categories of retail site was higher among women, with a few exceptions: Computer hardware and software, consumer electronics, sporting goods and music were more likely to be shopped for by men.  <emarketer.com>

 Hedgeye Retail’s Take:  Not surprisingly the breakdown between male/female purchasing behavior looks very similar to metrics tracking traditional retailing.  Yet another reason why online and offline shopping have reached a point where they are now seamless in the mind of the consumer.


R3: Basketball Getting Worse. Really?  - ecomm







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Jobless Claims Come in More Than 20K Above Consensus

Jobless Claims Come in More Than 20K Above Consensus While the Yield Curve is Quickly Compressing


Initial claims rose by 2k last week to 484k (rising 5k net of the revision).  Rolling claims came in at 473.5k, a rise of 14.25k over the previous week. This is the largest jump in the rolling claims series in all of 2010, though a look at the reported claims chart shows that the average just rolled off of the aberrantly low data point from July 10th.  Both reported and rolling claims are now consistent with the highs seen YTD. While we are beginning to feel like a broken record on this point, the fact remains that we need to see initial claims in the 375-400k range before unemployment meaningfully improves, and for now we are moving in the wrong direction.


To reiterate, our firm is of the strong view that US economic growth is going to slow markedly in the back half of this year and into 2011. We think this will keep a lid on new hiring activity and will keep cost rationalization paramount in the minds of C-suite executives. All of this raises the risks that a prospective slowdown in GDP will precipitate an incremental slowdown in hiring/pickup in firings, which will, in turn, further pressure growth. We continue to look to claims as the best indicator for the job market, as they are real time and inflections in the series have signaled important turning points in the market in the past.


Jobless Claims Come in More Than 20K Above Consensus - rolling


Jobless Claims Come in More Than 20K Above Consensus - raw


Below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.


Jobless Claims Come in More Than 20K Above Consensus - 1


As a reminder, May was the peak month of Census hiring, and it should now be a headwind through September as the Census continues to wind down.


Jobless Claims Come in More Than 20K Above Consensus - census chart


Joshua Steiner, CFA


Allison Kaptur

EARLY LOOK: Bad Product


“A market is never saturated with a good product, but it is very quickly saturated with a bad one. ”
-Henry Ford



On this day in 1981, the IBM Personal Computer was introduced. Don’t worry, Apple’s intermediate term TREND line of $257.93 may very well have broken yesterday on an accelerating volume and volatility study (bearish), but I’m not going to go there on Mick’s Cupertino versus PC.
I am going to take this puck right up the middle on American financial innovation however. Despite this industry being able to concoct gnarly synthetic securities for broker dealers to drive trading commissions over the last decade, conventional risk management products have gone by the way of horse and buggy whips. This poses systemic risk to the US financial system.
When I call them the 200-day Moving Monkeys, I’m not trying to be funny. I’m calling out a serious risk to all of your 201Ks. “Breaking the 200-day yesterday” is what I witnessed way too many people in the Manic Media citing yesterday as to why the market was going lower. If using a one-factor model (price of a moving average) is where risk management has evolved to in 2010… America, we have a problem.
The 200-day moving average was heralded in the 1970’s by the author of the “Telephone Switch Letter”, Richard Fabian (he used a 39-week moving average). Like Hedgeye’s Early Look, this was a successful newsletter product that charged a subscription fee. Unlike our Early Look, this one-dimensional trend following product was delivered by the mail man when there was no such thing as an internet connection.
Almost 40 years later, we have a multi-media platform on our desks with multiple trading screens, real-time media piping into our flat panel TVs and people pinging us via text, twitter, and email on our handhelds as our real-time quotes download across our risk management spreadsheets…
All the while, conventional wisdom is to take all of this technological innovation, set it aside, and react emotionally to the one line the monkeys are hanging on – the 200-day moving average for the SP500 at 1115…
Thank God for groupthink.
Since 1981, the asset management industry has obviously used things like personal computers to evolve. There are plenty of fantastic risk managers out there on the buy-side. Sure, we all make a living picking off the Manic Monkeys in both the media and on the sell side, but this doesn’t come without market risk. Conventional wisdom getting caught off-sides can cause collapse.
Yesterday’s -2.8% collapse in the SP500 can be explained using a multi-factor and multi-duration risk management model that spans countries, currencies, and commodities worldwide. So let’s get with 2010 this morning and use some computers and this great product called Excel to grind through the Real-Time Risk Management Early Look:
1.      Asia

-China closed down another -1.2% last night (taking its week-to-date loss to -3.1% and YTD loss to -21.4%) after the Chinese government reported more of the same in terms of what we’ve coined the Chinese Ox In a Box (Chinese demand has been slowing for 6 months as inflation has accelerated and the Chinese government tightens the screws on speculative borrowing). If you’d like our in depth note that we published on Chinese demand yesterday, please email sales@hedgeye.com.

-Japan closed down another -0.86% last night dropping the world’s 3rd largest economy back into the doldrums that are born out of quantitative easing. Japan’s Nikkei Index is now down -13% YTD.

-India’s industrial production slowed markedly in June to +7.1% versus 11.3% in May and the Bombay Stock Exchange closed flat on the news. The BSE Index remains in a bullish intermediate term TREND position, much like Indonesia and Singapore do (Hedgeye remains long both via the EWS and IDX etfs).


2.      Europe

-UK’s FTSE Index is breaking down below its intermediate term TREND line of 5252 this morning.

-Germany’s DAX is trading modestly lower, but holding its intermediate term TREND line of 6078 this morning.

-Switzerland, Netherlands, and Denmark are all flashing positive divergences versus both the European region and Asia/USA.

-Euro is down at $1.28, holding its bullish intermediate term TREND line of support of $1.26.

-British Pound (which we bought back yesterday on weakness) has stabilized at $1.56 and has no upside resistance up to $1.61.


3.      North and South America

-Mexico remains broken from an intermediate term TREND perspective, but we covered our short position in the Mexican etf (EWW) yesterday as it was oversold from an immediate term TRADE perspective (Mexican stocks have been down for 7 of the last 9 days).

-Brazilian currency and equities sold off hard yesterday and we took the -2.1% down move in the Bovespa as a buying opportunity in Brazil’s etf (EWZ) as the bullish intermediate term TREND line of support in the Bovespa continues to hold at 64,402.

-US Equities got wrecked yesterday, closing down for the 9th day out of the last 12, reminding the bulls that QE2, QE3, or QE4 is probably not what they should be begging Bernanke for. A disastrous US Dollar combined with structural unemployment and ominous bond yield signals are no recipe for long term American success.

Altogether, we covered 3 short positions in the Hedgeye Virtual Portfolio yesterday (Mexico (EWW), Blackstone (BX), and Royal Caribbean (RCL)) and we bought 3 long positions (British Pound (FXB), Brazil (EWZ), and Foot Locker (FL)).
We don’t think any of these moves have much correlation to the 200-day Moving Monkeys other than realizing that their bad risk management product gave us a behavioral buying opportunity.
My immediate term TRADE lines of support and resistance for the SP500 are now 1080 and 1110, respectively. Buy low, sell high.
Best of luck out there today,



As we look at today’s set up for the S&P 500, the range is 30 points or -0.9% (1,080) downside and 1.9% (1,110) upside. Equity futures are trading below fair value.  Today's focus will be the weekly jobless reading and import and export prices. After the close, Cisco (CSCO) reported seeing "unusual uncertainty” and “mixed signals" in the economy after posting in line earnings and revenues slightly below consensus.

  • ADVANCE/DECLINE LINE: -2290 (-890)
  • VOLUME: NYSE - 1164.32 (+18.71%) - A summer day but accelerating on down days
  • SECTOR PERFORMANCE: Every sector down - XLK and XLV broken on both durations TRADE and TREND
  • MARKET LEADING/LOOSING STOCKS: Carefusion +8.69, Macy’s +5.88 and Office Depot -8.18% and Allegheny Tech (7.58%)


  • VIX - 25.39 13.50% - The VIX now up for 3 days and bearish for equities.
  • SPX PUT/CALL RATIO - 1.64 down  from 2.49


  • TED SPREAD - 24.85 0.913 (3.815%)
  •  3-MONTH T-BILL YIELD .15% Unchanged
  • YIELD CURVE - 2.2359 to 2.1661 (close)  - Now at 2.2166 


  • CRB: 268.83 -1.27% (down for the last 5 days)
  • Oil: 77.24 -2.78% (down 5 of the last 6)
  • COPPER: 327.55 -1.75% (currently trading at 327.10 down 4 of the last 6 - BEARISH for growth expectations
  • GOLD: 1,196 -0.01% (trading down for 3 days, but trading at 1202 in early trading)


  • EURO: 1.2885 -1.77% - (trading down every day this week)
  • DOLLAR: 82.290 +1.85%) - (trading up every day this week)


  • ASIA - Asian markets closed broadly lower with China down 1.23% closing at its lowest level in two-and-a-half weeks.  Japan's Nikkei fell 0.86% to its lowest level in 13 months; concerns about a slowdown in the global economy which pushed the dollar to its weakest in 15 years against the yen. 
  • EUROPE - Major indices are trading mixed earnings and bargain hunting is diverting attention from MACRO concerns.
  • EASTERN EUROPE - Trading mixed to lower - Russia down for the third day; Estonia up 1.58%.
  • LATIN AMERICA - Closed lower with Argentina, Brazil and Chili all down more that 2%.
  • MIDDLE EAST/AFRICA - Mostly lower with Saudi Arabia down big for the second day 1.21% 
Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends













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20 Proprietary Risk Ranges

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