The Macau Metro Monitor, September 1st 2010




Macau’s casino gross gaming revenue reached MOP15.773 billion (~US$1.97 billion) in August, up 40% YoY.


In August, Macau hotel occupancy reached as high as 85% and room rates were up 15-20% YoY.  Industry experts believe a variety of festivals and events later this year including Mid-Autumn Festival and National Day of Golden Week may keep occupancy around 85%.  Meanwhile, there is a labor shortage in the hospitality industry as many hotels employees were put on extra shifts to meet the growing demand.


FIRST TRANSPORT HUB OPERATIONAL IN 2014 Intelligence Macau, Macau Daily Times

In 2014, Macau will open its first integrated transport hub comprising of bus stops, taxi, light rail stations, parking space and pedestrian system.  The hub will be constructed in front of the Jockey Club in Estrada Governador Albano de Oliveira, Taipa.  The SAR Government is planning to spend around MOP 900 million in order to create a “safe and convenient environment” for locals and tourists to change from one transport mode to another.  IM believes the hub's location would benefit Galaxy Macau.



HK and Macau residents can apply for a visa to Taiwan for free via the Internet starting today, the National Immigration Agency said.  Previously, HK passport holders could either apply for a Taiwan visa on the immigration agency's website and collect it at the airport before boarding, or obtain a 30-day visa on arrival for HK$75.  To be eligible for the visa, travellers must be Hong Kong- or Macau-born or have visited Taiwan before. The visa will be valid for 90 days, with a maximum stay of 30 days.



A spike in the number of Chinese tourists due to relaxed visa restrictions helped push up the total number of travelers to Japan in July by 39% YoY to a record 880,000.  There were 170,000 visitors from China--2.4 times more than the same month last year.

R3: JNY, Adidas, SKX, LIZ, URBN, Tommy Boy

R3: Required Retail Reading


We’re intrigued by JNY’s new footwear license. Smells like yet another one of those moves to add business opportunity (and liability) without adding any more capacity (design/sourcing/marketing). That’s not sustainable.




Opinion On Tommy Hilfiger's Latest Campaign - "How can you not hate these people?" my 20-year-old son asked after surveying "Meet the Hilfigers," the family stars of "The ultimate tailgate," Tommy Hilfiger's latest campaign. The photo he saw consists of 15 blonde-ish model types wearing an assortment of rugby shirts, pleated skirts, signet rings, pinstriped suits, orange pants, duck boots, cable-knit sweaters and camel-hair everything, all arrayed around a Jeep Grand Wagoneer. The shot has a slightly off-kilter look -- Mumsy might have had one too many Bloody's and cousin Max seemingly couldn't stop playing with his hair -- so perhaps it's meant to portray an old-money family on a messier, more recession-aware day. The multimedia, multi-generational fall campaign, directed by Trey Laird and beautifully photographed by Craig McDean, is not particularly original. When it comes to classic Anglo worship and the concept of kinfolk on a journey, Ralph Lauren, of course, got there earlier.  <>

Hedgeye Retail’s Take: I can’t outdo that description. No way, no how…! 


JNY Signs Footwear Designer - Jones Apparel Group Inc. has a new name in its designer stable: hot footwear designer Brian Atwood. The company has signed a license with Atwood to manufacture, market and distribute a contemporary brand named B Brian Atwood. The deal seeks to capitalize on the designer’s rising popularity by making his products obtainable by more consumers and brings another talent to the New York-based apparel conglomerate’s brand portfolio that over the last three years has expanded to include Stuart Weitzman, Robert Rodriguez and Rachel Roy. B Brian Atwood, which will be aimed at better department stores and upscale specialty retailers, is scheduled to break for fall 2011 with shoes, followed by jewelry and handbags the year after, and sportswear and sunglasses in subsequent seasons.  <>

Hedgeye Retail’s Take: Beware! The question to ask JNY is what organization they will build around this license. Will they use it to fill out existing excess design/sourcing capacity on their core business? Will they use this to mitigate any inefficiencies in the Stuart Weitzman business? Either way, in typical JNY fashion, my strong sense is that they won’t grow operating assets accordingly, and this will boost near term profitability in an unsustainable way. 


Adidas Collaborates with Maple Lake Ltd. to Maximize Merchandising - Adidas has signed an agreement with Maple Lake Ltd. to implement QuickAssortment, a comprehensive corporate merchandise and assortment planning application for adidas’ global retail operations. Adidas and Maple Lake are implementing QuickAssortment, an affordable, powerful assortment management approach that maximizes merchandising, localization, Open to Buy and more. It is being managed from adidas’ group headquarters in Herzogenaurach, Germany, and then rolled out to adidas retail operations centers.  <>  

Hedgeye Retail’s Take: Good, but not revolutionary. This has proven to be a successful platform for Lululemon, Intermix, Barney’s, Club Monaco, Cole Haan, Levi’s, and others. 


H&M Snags Hot European Label Lanvin - It looks like H&M has snared one of the hottest labels in Europe — Lanvin — for its next designer collaboration. According to market sources, the Swedish fast-fashion giant will unveil a project with Lanvin and its creative director, Alber Elbaz, within the next week. On Tuesday, H&M launched a viral video campaign on its Web site and YouTube to build curiosity about its annual holiday designer tie-up. <>

Hedgeye Retail’s Take: It’s really tough not to love H&M. They’ve grown to own the whole ‘buy trendy apparel at a low price then wash your car with it after 3 wears’ market. 


Skechers Signs Licensing Agreement for Luggage and Travel Accessories - Skechers USA, Inc. signed a licensing agreement with Olivet International for Skechers-branded luggage and travel accessories for men, women and kids.  <>

Hedgeye Retail’s Take: Last I checked, you had to have a relevant brand before you can license it out to a category as ‘out there’ as luggage. I don’t see the downside for SKX, but can’t find much upside, either. 


Juicy Couture Hard to Come By This Fall? - After experiencing lackluster results with the line, several major retailers have scaled back their Juicy Couture business. Some are carrying the higher-priced Bird by Juicy Couture. A spot check of stores revealed that Saks Fifth Avenue dropped the Juicy Couture line at the New York flagship for fall; Bloomingdale’s flagship cut way back on its Juicy department on the contemporary floor; Nordstrom passed on the apparel line for fall; Bergdorf Goodman no longer carries the line, and Neiman Marcus has dropped the line in several stores, such as White Plains, N.Y. and Beverly Hills. For years a fixture in contemporary departments, Juicy Couture sportswear had suffered from overexposure, quality and fit problems. In April, Juicy tapped Erin Fetherston as guest designer and creative consultant, beginning with holiday 2010 and running through 2011. The company continues to open 10 to 20 retail doors a year, and will take its e-commerce site in-house Sept. 15, which is expected to become its largest door.  <>

Hedgeye Retail’s Take: This is not new to anyone following the LIZ story. But the characterization above is rather accurate. Textbook retail mismanagement. 


URBN Showcases What its Shoppers Like - What products most please consumers who shop with apparel and home accessories retailer Urban Outfitters Inc.? Now it is easier to find out because the retailer’s web site allows consumers to sort SKUs based on what its Facebook followers have clicked that they Like. The retailer has put the Facebook Like button integration at the top of the site. The retailer, with more than 313,000 followers on the social networking site, uses its Facebook page to offer Facebook follower discounts, such as 15% off orders of at least $75, highlight merchandise, and share tips on clothing care. <>

Hedgeye Retail’s Take: What’s most interesting is not what URBN is doing (which makes total sense, by the way), but how easy it is for a company to leverage technology and implement these ideas. We’re not talking a massive capex plan over 2-years to get this done. But rather a couple smart Millenials who earn sub-$100k/year, an internet connection, and above average knowledge of social media tools. And yet there are many companies that will STILL be so late to the party. 




























Follow The Trail

“Do not go where the path may lead, go instead where there is not a path and leave a trail.”

-Ralph Waldo Emerson


A college hockey coach sent me a nice recruiting letter about fifteen years ago with the quote above handwritten on it.  Although I ended up not going to the college he coached at, he did catch my attention with the quote.  At the time, as a rangy defenseman from a small town in Alberta, I’m pretty sure I didn’t know who Emerson was and I had certainly never seen the quote before.  As a result, I was quite moved by the concept and idea embedded within the quote.


Emerson was known as a passionate individualist and a “prescient critic of the countervailing pressures of society”.  He spread his gospel via dozens of essays and many hundreds of public lectures across the United States.  According to Wikipedia, Ralph Waldo Emerson was an American philosopher, lecturer, essayist, and poet.  Were he alive today, I think he may have been a Hedgeye.


In the short history of our firm, we’ve been accused of many things.  On the political front, we’ve been accused of being both Republican and Democrat.   On the market front, we’ve been accused of being bullish and bearish, and sometimes both at the same time.  We’ve also been accused of being grumpy (well, mostly Keith before his coffee) and overly negative.  The bottom line is that we have opinions, which are sometimes offensive to people, but those opinions aren’t to make ourselves feel better.  They are based on data and analysis with the objective of producing high quality and accurate research.  We express that research with our opinions, and when the facts change, so too do our opinions.

Currently as we survey the global macro landscape, we see a number of markets making trails that both concern us and really inform our broader perspective.  This morning I want to highlight three of those: the yield curve, the Swiss Franc, and copper.

1. The Yield Curve - Yesterday in our morning call, our Financials Sector Head Josh Steiner noted that the yield curve was narrowing to a point where banks were going to potentially see an impact on their earnings.  Remember, banks borrow short and lend long, so as the yield curve narrows, so inherently do their margins. So it’s no surprise given this move in the yield curve that the financial sector ETF has been the worst performer of all the sector ETFs in the last three months (down 7.9%) and broken from both a Trend and Trade perspective.  

From a global macro perspective though, the yield curve narrowing is typically a leading indicator for slowing economic growth.  When we analyze the yield curve, we focus on two durations specifically - 10s and 2s. In the parlance of the nonfinancial world, that is 10-year treasuries and 2-year treasuries, or as we like to call it, The Piggy Banker Spread.  We've highlighted this point in the chart below, but the Piggy Banker Spread has narrowed dramatically through the course of the year from ~290 basis points at its peak to ~210 basis points now.  This narrowing provides further support for our view that global growth is going to slow as it is a real time indicator for which direction long term rates are going, and the answer seems to be lower.

As a side note, we read with interest quotes from Thirdpoint’s Dan Loeb's recent letter to his investors (Dan, if you get a minute, please email us a copy).  Dan's letter, from what we could tell, went off on the system being rigged and on government intervention generally.  Admittedly, this is a point we have been very vocal on and it does worry us as we analyze and try to infer research information from markets that are managed by the U.S. government because, to be frank, we don't trust the Fiat Fools in Washington.

Nonetheless, the yield curve is a trail that is leading us to slow growth. For now, we'll accept that for what it is.

2. Swiss Franc - We highlighted this point in a note to our subscribers yesterday and want to re-emphasize it today.  The Swiss Franc has had a massive move against the Euro in the last three weeks.  In fact, the Swiss Franc is up over 7% in the time period (that's a big move in currency land) and is now back at levels not seen since the May time frame when everyone and their mother was worried about sovereign debt issues.  Well, sovereign debt issues don't go away over night, or because of ECB interventions.

The rapid move in the Swiss Franc, in conjunction with widening of credit default swaps in Europe over the past few weeks, is signaling that we may be hearing and seeing more sovereign debt issues in Europe in the coming months.  The explicit buying of the Swiss Franc and selling of the Euro is a direct vote against the Euro, and an attempt by those institutions with large currency exposure in Europe to hedge or protect the relative value of those European assets.

3. Copper - Dr. Copper over the past three months is up 9.9%, while its global commodity brother, Oil, is only up 1% on the same duration.  This isn't surprising since copper inventories globally, most specifically measured by the London Metals Exchange, are at nine month lows.  Moreover, based on normalized demand patterns and underinvestment over the past couple of years, we expect a global copper deficit next year for the first time in four years. Most importantly, this price divergence is a trail that is leading us to China. For the first time this year we are long China in the Hedgeye Virtual Portfolio via the etf, CAF.

Copper is verifying its trail this morning as it is up another 2.1%.  That is not necessarily a surprise given the Purchasing Managers Index report from China, which is an indicator of industrial activity.  This report saw a small increase sequentially going from 51.5 to 51.7.  While this is by no means massive, it does indicate stabilization.  In a country with 1.3 billion people growing at north of 10%, stabilization is perhaps all we need to be comfortable from a growth perspective.

Taken together these paths are leaving trails that we need to contemplate before our own portfolio trails.

I'm not sure if Ralph Waldo Emerson ever traded a P&L, but I'm guessing if he did he’d have an investment notebook, and his quote inscribed on the inside:

"A hero is no braver than an ordinary man, but he is brave five minutes longer."

Sometime that's all we need in this interconnected global market place, five minutes.

Yours in risk management,

Daryl G. Jones


Follow The Trail - ELPiggy

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TODAY’S S&P 500 SET-UP - September 1, 2010

As we look at today’s set up for the S&P 500, the range is 21 points or 1.08% (1,038) downside and 0.92% (1,059) upside. 

Equity futures are trading above fair value boosted by stable Chinese manufacturing data and tracking gains across European indices. The focus continues to be on economic news as the market looks for signs of an economic recovery.

  • Today's macro highlights include August ADP Employment Report, July Construction Spending and August ISM Index
  • Eli Lilly (LLY) won a court order banning sales of generic versions of Strattera until a patent appeal is decided
  • FormFactor (FORM) cut 3Q rev. forecast to $46m-$48m vs. est. $57.3m
  • PerkinElmer (PKI) agreed to sell illumination and detection solutions business to Veritas Capital Fund III LP for ~$500m
  • Sysco (SYY) approved a program to repurchase 20m shares, or 3.4% outstanding stock
  • Texas Instruments (TXN) and Spansion (CODE) entered agreement to make Flash memory chips through June 2012
  • PERFORMANCE ONE DAY: Dow +0.05%, S&P +0.04%, Nasdaq (0.28%), Russell 2000 +0.05%
  • PERFORMANCE MONTH-TO-DATE: Dow (4.31%), S&P (4.74%), Nasdaq (6.24%), Russell (7.50%)
  • PERFORMANCE QUARTER-TO-DATE: Dow +2.46%, S&P +1.61%, Nasdaq +0.23%, Russell (1.22%)  
  • PERFORMANCE YEAR-TO-DATE: Dow (3.96%), S&P (5.90%), Nasdaq (6.84%), Russell (3.73%)
  • ADVANCE/DECLINE LINE: 327 (+2014)
  • VOLUME: NYSE - 1402.70 (+71.41%) - Very strong volume on an UP day
  • SECTOR PERFORMANCE: 5 of 9 sectors traded up on the day
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Sprint +4.62%, Dean Foods +4.39% and Cliffs Natural +3.66%/Broadcom -6.4%, Monsanto -5.81% and Textron -4.15%


  • VIX: 26.05 -4.26% - YTD PERFORMANCE: +20.2%               
  • SPX PUT/CALL RATIO: 1.82 from 3.04  


  • TED SPREAD: 15.87 -1.015 (-6.008%)
  •  3-MONTH T-BILL YIELD: .14% unchanged
  • YIELD CURVE: 2.00 from 2.04


  • CRB: 264.19 -1.33%
  • Oil: 71.92 -3.72%
  • COPPER: 337.00 -1.73%
  • GOLD: 1,248 +0.88%


  • EURO: 1.2689 +0.09%
  • DOLLAR: 83.202 +0.05%




  • Nikkei +1.17%; Hang Seng +0.43%; Shanghai Composite (0.60%) Regional indices ended higher, with the exception of Shanghai Composite Index which suffered from a profit taking. Good macro data from Australia and China helped boost investor sentiment.
  • Australia Q2 GDP +1.2% q/q vs. survey +0.9%
  • China August PMI 51.7 vs. survey 51.5.



  • Major indices are trading higher helped by good data. Construction & Materials, Basic Resources and Media are among the positive sectors.
  • France Aug Final Manufacturing PMI 55.1 vs. preliminary 54.7
  • Germany July Retail Sales +0.8% y/y vs. consensus +1.4% and prior revised 4.7
  • Germany Aug Final Manufacturing PMI 58.2 vs. advance 58.2
  • Eurozone Aug Final Manufacturing PMI 55.1 vs. preliminary 55.0 
Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends














With Q2 under our belts, we’re taking a look at the important Direct VIP business in Macau.  Why didn’t Wynn’s share go up with Encore?



Direct VIP is an important part of the Macau marketplace, representing 17% of total Rolling Chip volume.  The profit contribution is even higher.  Instead of paying an average of 1.25% of roll to the junkets, the operators rebate only 0.7% to 1.1% back to the players.  This results in a 1,200bps higher EBITDA margin from the midpoint given the differential.  The American operators are the most successful in this segment, particularly LVS, while Macau’s largest operator, SJM, does not participate in Direct VIP.


Following the end of earnings season, we are now able to back into the Q2 Direct VIP contribution.  The following chart shows the market shares in Direct VIP. 




LVS continued to grow its Direct VIP share – the only segment where its market share has grown.  However, LVS recently announced it would be refocusing its efforts on the junket business so we would expect Direct VIP share to decline.  The most puzzling market share move is Wynn.  Despite the April opening of the predominately Direct VIP marketed property, Encore, Wynn’s share declined slightly in Q2.  Combined with July/August overall market share sequential declines, Wynn’s Direct VIP share may further the narrative that Encore has not been additive.  The next chart shows each company’s percentage of Rolling Chip volume attributable to Direct VIP.  Again surprisingly, Wynn’s VIP % barely budged following the opening of Encore.  MGM still generates a higher percentage of its RC from Direct VIP than Wynn, although this is partly due to MGM’s woeful junket performance.




The good news: the Conference Board Consumer Confidence index improved moderately in August from July - the Index now stands at 53.5, up from 51.0 in July.

  1. The Present Situation Index decreased to 24.9 from 26.4.
  2. The Expectations Index increased to 72.5 from 67.5.
  3. Consumers are less confident today as they were a year ago – consumer confidence was at 54.5 in August 2009.
  4. The proportion of respondents saying jobs are “hard to get” increased to 45.7% from 45.1%, while those claiming jobs are “plentiful” declined to 3.8% from 4.4%.

In summary, consumers’ expectations improved moderately in August, but overall most remain pessimistic and there is no improvement in the labor market.  There is nothing in today’s confidence reading that leads us to expect acceleration in consumer spending.


TRACKING THE 3Q GDP SCORE CARD - conf board con conf aug10


Also in the “good-news-for now-and-meaningless-to-3Q GDP” camp is the Case/Shiller data for the month of June.  The data came in strong with a non-seasonally adjusted increase of 1.0% sequentially (+0.3% seasonally Adjusted) and a NSA increase of +4.2% vs. last year, down from +4.6% last month. 


See Josh Steiner’s post for all of the details, but starting next month a roll over in the Case/Shiller data is all but assured.   June’s Shiller data point reflects contract activity for February, March, and April – strong months in the housing market going into the expiration of the housing tax credit.  From Josh Steiner’s post today: “Starting next month, however, February will be replaced by May and the month after that March will be replaced by June and finally April will be replaced by July. As demand dried up in those ensuing months and we would expect to see prices begin to reflect that.”


The bad news: Chicago PMI - the Chicago ISM number fell to 56.7 in August from 62.3 in July, the lowest since November 2008.  With new orders declining to 55.0 in August from 64.6 in July, so does the inventory correction.  Inventories fell to 46.5 from 50.8 in July.  As seen in the chart below, the ISM inventory Index track closely to the inventory contribution to GDP chart we published yesterday. 


Due for release on Friday is the August payroll employment change and unemployment rate, which are likely to be disappointing to current expectations.  According to Bloomberg, the current consensus estimate for the August payroll employment change is (100,000) – a slight improvement from 131,000 jobs lost in July.  As an aside, the news of the MON restructuring is a real-time indicator as to how difficult the job market remains for the unemployed.  The reporting risk to the downside of expectations is in place for an outright payroll contraction in August (net of census impact), with the total jobs lost likely to exceed 100,000.  The consensus also calls for the August headline unemployment rate to be 9.6%, up from 9.5% in July. 


TRACKING THE 3Q GDP SCORE CARD - gdp inventory pmi w 3q est


Howard Penney

Managing Director

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