The Macau Metro Monitor, September 13th 2010



According to IM, another price war is brewing in Macau.  With MGM Macau on the IPO path and Melco-Crown wanting to prove the brass of its management reshuffle, both companies need to get their revenues up, and the easiest way to do that is to spend heavily on marketing and rebates.  IM believes that MGM will see another MoM increase in September in revenues as they add more junket play through aggressive revenue-share deals and front money handouts, while growing Mass play through free buffets and lucky draws. Crown also seems to be driving play levels through enhanced credit offerings to its junkets as well as aggressive revenue share deals. The question is how will WYNN and LVS react.



Total government cash handouts to local Macau residents are up $3.3BN or up to MOP$6,000 per person.



According to the director of the Chinese tourism research institute, visitation to Macau expected to increase 20% during Golden Week

China Is What It Is

“A man should look for what is, and not for what he thinks should be.”

-Albert Einstein


Upholding the principle of that Einstein quote has to be one of the most challenging aspects of this risk management game. Most investors have a confirmation bias that guides their decision making. Over the years I’ve started using blunt mathematical instruments to attempt to impair mine.


Being bearish on US Equities since April 16th was the right call. Starting to cover our short positions on August 24th (covered SPY, IWM, XLY, etc. that day) and going long Chinese equities (bought CAF) on August 25th were good calls. Staying perpetually bearish on everything US or China is rarely a good idea.


One could argue that I made a wrong call selling our US Equity exposure too early this month (we moved to a 6% position in our Asset Allocation model in late August, buying Utilities and Pharmaceuticals). I’d have no argument in response. This is what we call the score. It doesn’t lie.


The score coming out of Washington last night was finally good. The Washington Redskins beat the Dallas Cowboys 13-7 and China re-accelerated their leadership in global economic growth. If you didn’t know why oil, US Equities, and US Treasury yields broke out above critical lines of resistance late last week, now you know…


Here’s a Chinese weekend data check: 

  1. China’s Industrial Production growth re-accelerated sequentially (month-over-month) to +13.9% y/y in August versus +13.4% in July.
  2. China’s Retail Sales growth re-accelerated sequentially (month-over-month) to +18.4% y/y in August versus +17.9% in July.
  3. China’s Consumer Price Inflation (CPI) continued to accelerate, climbing to +3.5% y/y in August versus +3.3% in July. 

Now this isn’t all of the Chinese data and, like it is in America, I’m certain that part of it is made-up… but it’s certainly better than Made-off type data and whenever our professional politicians attempt to chastise China or its data, they should seriously think about that.


The #1 reason why we are long China is the exact same reason why we were short China at the beginning of 2010. The core tenet to our Q1 Hedgeye Macro Theme - Chinese Ox In a Box – was that the Chinese were going to tighten the screws on speculative growth. They did. Economic growth slowed for almost 7 consecutive months. And no matter where you go this morning, here China’s data is – re-accelerating for the 1st time sequentially in 2010.


Whether you are a chaos theorist or not, you need to “look for what is, and not for what you think should be.” Jim Chanos is a world class short seller and he can be convincing in his longer term duration call that China can blow up. But I can tell you that is not happening today. In fact, I’ll put my risk management neck out on a limb here and make the call that China isn’t going to blow up this week either!


China is what it is right now – re-accelerating growth.


Sure, this will come at a cost to both your equity short positions (futures up) and the Chinese citizenry (inflation up). The world’s dark little deflation secret is that it’s not happening anywhere other than in certain assets domiciled in certain Fiat Republics. If you own J.R. Ewing’s 1980’s ranch on steroids and thought that having llamas grazing the front of your Connecticut front yard was going to inflate your property value in perpetuity, sorry to tell you like it is…


Here’s a real-time Asian market price check: 

  1. China’s Shanghai Composite trades up another +0.9% overnight , taking its rally from the July lows to +13.8%.
  2. Hong Kong +1.9%, South Korea +0.9%, and India making another new YTD high trading up +2.2%.
  3. Japan even caught a bid, giving a Fiat Republic a bone, getting the Nikkei to close above its immediate term TRADE line of 9,190. 

Here’s a real-time Europe/Middle East market price check: 

  1. Germany’s DAX is up another +0.8% (bullish TRADE and TREND; we are long EWG), and now up +5.1% for the YTD.
  2. Spain +1.1%, Italy +1.4%, and Ireland +1.3% as the pain trade for those who shorted the Euro’s bottom in June continues.
  3. Russia +1.5%, Norway +1.2%, and United Arab Emirates busting a +2.3% move to the upside as oil breaks out above our TREND line. 

Here’s a real-time Commodity/Currency market price check: 

  1. CRB Commodities Index indicated up again this morning after going bullish from a TRADE and TREND perspective 3 weeks ago.
  2. Oil prices have confirmed the critical breakout above our intermediate term TREND line of $75.70/barrel last week.
  3. Chinese Yuan/USD 6.75 this morning is a new record (post 2005) high and Euro/USD is trading solidly above TREND line support of $1.26. 

I guess Timmy shouldn’t have called the Europeans piggies and the Chinese manipulators. After all, in the end markets and political lives all find a funny way of finding where everything starts – not for what the conflicted and compromised want them to be, but for what they are.


We’ve reduced our cash position in the Hedgeye Asset Allocation Model to 55% (down from last week where we started the week at 64% and down from our 2010 YTD peak cash position of 79%). My immediate term support and resistance lines for the SP500 are now 1107 and 1129, respectively. The greatest risk to not being short US Equities right here and now is that Congress is back in session today.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


China Is What It Is - 1


TODAY’S S&P 500 SET-UP - September 13, 2010

As we look at today’s set up for the S&P 500, the range is 22 points or -0.23% (1,107) downside and 1.75% (1,129) upside.  Equity futures are trading above fair value in response to the new global capital standard rules for banks announced over the weekend with better-than-expected Chinese August production, consumption and inflation data also underpinning sentiment.

  • Airgas (ARG) said Sept. 10 it may buy back $700m or more stock should Air Products & Chemicals (APD) withdraw its $5.5b offer
  • Casey’s General Stores (CASY): Alimentation Couche-Tard (ATD/B CN) said it may raise offer following $40-shr bid from 7-Eleven
  • Comverse Technology (CMVT) delayed filing results for quarter ended July 31, saying it needs time to adjust past earnings
  • EResearchTechnology (ERES) said CEO Michael McKelvey will retire and company is searching for a successor
  • Intuit (INTU) may rise as much as 25% in next 12 months, Barron’s reported, citing Cowen’s Peter Goldmacher
  • Oshkosh (OSK) got a $260m contract to produce 2,060 medium tactical vehicles, DoD says
  • PG&E (PCG): Sections of PCG pipeline that ruptured in Sept. 9 blast are being sent to Washington for testing and analysis
  • Patriot Coal (PCX US) cut 3Q sales volume est. by 10%
  • VMWare (VMW) may decline amid growing challenges from rivals, Barron’s reported
  • Williams-Sonoma (WSM) said it plans to buy back as much as $65m more shares
  • Xerox (XRX) may double as it pushes into data processing, analysis and storage, Barron’s reported


  • One day: Dow +0.46%, S&P +0.49%, Nasdaq +0.28%, Russell +0.29%
  • Month-to-date: Dow +4.47%, S&P +5.74%, Nasdaq +6.08%, Russell +5.71%
  • Quarter-to-date: Dow +7.05%, S&P +7.65%, Nasdaq +6.32%, Russell +4.43%
  • Year-to-date: Dow +0.33%, S&P (0.5%), Nasdaq (1.18%), Russell +1.77%


  • VOLUME: NYSE - 756.23 (-9.88%)  
  • SECTOR PERFORMANCE: Only sector down on Friday was the XLU
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Moody’s +5.85%,Cameron +3.95% and Viacom +3.69%/PG&E -8.35%, Natl Semi -6.36% and Micron -4.26%
  • VIX: 21.99 -3.59% - YTD PERFORMANCE: (+1.43%)            
  • SPX PUT/CALL RATIO: 1.95 from 1.88  


  • TED SPREAD: 15.83, -0.203 (-1.265%)
  •  3-MONTH T-BILL YIELD: .14% trading flat
  • YIELD CURVE: 2.23 from 2.20


  • CRB: 275.14 +0.71% - Two down days in the last nine
  • Oil: 76.45 +2.96% 
  • COPPER: 340.65 -1.07%
  • GOLD: 1,243 -0.23%


  • EURO: 1.2679 -0.17%
  • DOLLAR: 82.698 +0.03%



  • Asian markets: Nikkei +0.89%; Shanghai Composite +0.94%
  • Markets closed sharply higher, boosted by Chinese economic data released this weekend. Banks rose on the release of Basel III requirements that met expectations and resource stocks gained on higher crude futures.
  • Japan was broadly higher.
  • Banks gained 2% on the Basel rules, and China-linked shares went up on the Chinese economic data


  • FTSE 100: +0.8%; DAX +0.8%; CAC 40 +1.1%
  • Indices are trading higher with financial names to the fore as markets react positively to the improved visibility afforded by the new capital adequacy rules established by Basell III. 
Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends














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The Economic Data calendar for the week of the 13th of September through the 17th of September is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.




R3: SKX, PVH, TBL, M, Toys R Us, BONT


September 10, 2010


Toys R Us is making one of the more aggressive moves heading into the holidays by increasing its footprint 2x by leveraging the pop-up store concept. 




- Don’t be surprised to see Toys R Us stores in unassuming locations this season. After testing the pop-up store concept last year, Toys R Us has announced that it plans to open 600 for the holiday season more than doubling the company’s current base of 587 domestic Toys R Us stores. At an average size of 4,000 sq. ft., this concept will help manage inventory heading into an uncertain holiday season for retailers as well as provide optionality of adding new doors as it converted ~5% of last year’s pop-up stores to permanent outlet locations.


- While it was mentioned that sales in Van Heusen’s Heritage business continues to be robust with 15% growth expected in the 2H largely with key customers, Timberland’s contribution is likely to be overshadowed by existing lines including IZOD, Van Heusen, and Arrow. In a call with Timberland’s management, it was noted that its line is currently the #2 selling brand at Macy’s behind only RL. With the current offering in sportswear, future growth is likely to come from a collaboration that will add more outdoor product to the mix as well.


- It was only a matter of time before the Kardashian sisters made their way to New York. On the heels of their hit reality show, and the launch of a highly successful line at BEBE, producers of their show are now out looking for employees for a trendy new women’s clothing store. Not long ago the sisters were out shopping for retail space in the Meatpacking District.





Skechers Seeks Growth Through Adding Stores - Skechers USA Inc. is betting that a home-field advantage will help sell more gym-goers on its butt-toning sneakers. The second-largest U.S. athletic shoemaker plans to open 37% more stores this year for a total of 300 as it introduces Shape-ups shoes aimed at athletes. The footwear marks a departure from the debut shoe, which promised wearers they could “get in shape without setting foot in a gym.” That pitch helped catapult Shape-ups into the ranks of the best-selling athletic shoes in the U.S. and boost Skechers’s sales 55% to $997.6 million in the first half. Skechers plans to keep the momentum going by luring athletes through its own stores, where employees know more about the science behind the shoe, said Leonard Armato, who runs the Shape-ups business.  <>

Hedgeye Retail’s Take: Give credit where it’s due, Skechers did a solid job marketing and producing a toning shoe for the masses, but a true athletic brand Skechers is not. New stores will be key to selling through not only the new SRR running shoe, but also to help manage Shape-up inventory – particularly if demand continues to come in weaker for some of the new styles.


Bon-Ton Signs Deal With Emu Australia Brand - Bon-Ton Stores Inc. has signed on to be the exclusive department store to carry the Emu Australia brand. In addition to carrying the label’s signature collection of sheepskin boots, Bon-Ton will also sell Emu’s extended line of shoes and slippers — 18 different styles in all —during the fall ’10 season.  Fred Kraft, VP and DMM for shoes at Bon-Ton, said the retailer plans to place Emu on the high-end side of the boot business. Emu Australia will be available at all 250-plus Bon-Ton locations across the Northeast and Midwest. <>

Hedgeye Retail’s Take: Emu positions itself as the original authentic Australian sheepskin boot, a trend that continues to be relevant, however we’d argue the more attractive prospect for the partnership is the brand’s apparel business. Bringing that category into the fold would be a solid win for BONT if the relationship proves beneficial for both parties.


Strong Relationship Continues Between Macy's and Tommy Hilfiger - If there was ever a retailer and designer brand attached at the hip, it would be Macy’s and Tommy Hilfiger. “We meet every six weeks. They bring in 10 people, we bring in 10 people and we talk through the whole business,” said Terry Lundgren, Macy’s Inc. CEO. Since unveiling the strategic alliance in October 2007, making Macy’s the sole department store retailer in the U.S. of Tommy Hilfiger men’s and women’s sportswear, high expectations for growth have been sustained. “We expanded with a Tommy Hilfiger kids’ business this year, and we are looking into creating an active line, which will really be more of an athletic line,” Lundgren said. “We think there is an opportunity for dresses and maybe some dress-up product for men and women, and bigger handbag and shoe businesses. All of those pieces are still in front of us. We couldn’t be happier with the results. We actually ended up exceeding original expectations.” <>

Hedgeye Retail’s Take: PVH and Macy’s relationship continues mature. Given the success of both new lines like Timberland (see comment above) and existing, but newly acquired relationships such as Tommy, we fully expect PVH to continue to gain share at Macy’s in the intermediate-term.


Amer Sports to Accelerate Growth in Apparel/Footwear - Amer Sports said that under a revised long-term strategy, it will emphasize faster growth in apparel and footwear (softgoods) categories. It also plans to expand its own retail stores and e-commerce efforts. Amer Sports is the parent of Salomon, Wilson, Precor, Atomic, Suunto, Mavic and Arc'teryx. <>

Hedgeye Retail’s Take: With outdoor outerwear up +13% YTD and significantly outperforming other categories in sports apparel, this doesn’t come as a surprise. The Canadian-based company is looking to ride one of the few pillars of strength in sports apparel as it starts to shift from a wholesale business towards retail – a move that makes sense given its strong stable of brands.  


TLC and Plus Sized Retailer Catherines Partner Up - TLC is marching down the aisle with the women’s clothing chain Catherines, setting in motion a marketing partnership designed to draw viewers to a new bridal-themed series. A plus-size spin-off of TLC’s long-running fashion series, Say Yes to the Dress: Big Bliss will bow on Oct. 1. As part of a promotional exchange, Catherines will place tune-in signage throughout its 460 retail locations, while running a half-page Big Bliss ad in its October catalog. In addition to the store’s retail efforts, messaging about the series will be posted on the Catherines Facebook page, which has a roster of 11,204 fans. Moreover, a feature providing additional information about Big Bliss will appear on the site. A co-branded ad will appear in the Bauer’s monthly lifestyle magazine First for Women, which has a rate base of 1.2 million. <>

Hedgeye Retail’s Take: A positive branding opportunity for one of Charming Shoppes’ struggling lines – these types of ‘show-to-store’ arrangements usually drive traffic if nothing else. Now it’s up to Catherines to execute on merchandise.


Ethan Allen Launches New Ad Campaign, Focus on Younger Demographic - Ethan Allen has launched a new ad campaign, which aims to convince consumers that they don't have to splurge on lots of furniture to create a stylish home. The home furnishings retailer is introducing a series of TV, print, online and direct mail ads with a recessionary pitch. Ads position Ethan Allen as an “aspirational” and “attainable” brand through slogans like: “A great room starts with a great piece.” And: “Relax. You don’t have to do it all at once.” The campaign--which is the first new work since Ethan Allen shifted the account to Interpublic Group-owned McCann Erickson in July--is part of the company's strategy to reposition itself with younger consumers. Americans in their 40s, 50s and 60s currently make up the brand’s core demographic. But Ethan Allen, which also offers interior design services, is looking to connect with consumers in their 30s and 40s, who also have some discretionary income to spend.  <>

Hedgeye Retail’s Take: This just feels like a brand that can’t find itself. Ethan Allen is no longer considered a higher-end brand, but it certainly isn’t value/discount either, especially with the success of the Ikeas, Home Goods, and Kohls of the industry that have captured much of the lower-to-middle end consumer. Interpublic Group will have its work cut out for itself getting the company over the stigma of being a tired feminine brand.


 Seasonal Hiring Likely to Rebound on Brighter Retail Outlook - Major retailers are decidedly more upbeat going into this year's holiday season than they were a year ago, according to a survey released by Hay Group, a global management consultancy. While that will mean more seasonal hiring, high unemployment rates will ensure tough competition for retail jobs. <>

Hedgeye Retail’s Take: With traffic generally still less than robust, we’d be a bit surprised to see retailers ramp aggressively at this point in the season. That said, the pop-up store concept could catch on more broadly (see our Toys R Us comment above), which could indeed drive demand for seasonal hiring.


Progress With Shopkick - Shopkick has made quite a name for itself in recent months. The location-based iPhone app recognizes when users are near a retail store, then offers them rewards for coming closer to it and bigger rewards for stepping inside. Shopkick first made a splash when it received $15 million in funding this summer—before it had even rolled out its retail rewards app. Then, a scant month later, it went live with the app and announced deals with big-name retailers including Best Buy Co. Inc., Macy’s Inc., The Sports Authority and teen apparel retailer American Eagle Outfitters Inc. American Eagle has been using shopkick technology in 52 of its stores in New York, Chicago, Los Angeles and San Francisco for about a month, says Mike Dupuis, vice president, marketing and operations for American Eagle Outfitters Direct. And, he says, the retailer plans to roll out the technology to all its stores soon. <>

Hedgeye Retail’s Take: Reminiscent of retractor beams a la Star Wars, this app is just getting started. As if navigating the malls during the holidays wasn’t challenging enough, take caution as more shoppers will be glued to their iphones tracking deals this season.


China: Five Footwear Companies Draft International Footwear Standards - Five mainland Chinese footwear companies, including Kangnai, Aokang, Red Dragonfly, Taima, and Aogusidu in Wenzhou, have come together to take part in the drafting work for ISO/TC216 technical standards that include the standards of anti-microbial and harmful materials contents, according to the Wenzhou Quality and Technical Supervision Administration. <>

Hedgeye Retail’s Take: While it appears at first to be a proactive move to increase standards, China is in the midst of several high-profile corporate scandals involving sub-standard systems and processes making it easier for international businesses to shift operations to other countries. This move alone won’t move the needle – more will have to follow.



I’m going to start trying to bullet point data, prices, and signals that I fail to weave into my Early Look notes.  Here's a partial glimpse into those notes.



INSIDE THE HEDGEYE NOTEBOOK: Sept. 10, 2010 - Notebook Image Hedgeye


In the last 24 hours, here are some green (bullish) and red (bearish) highlights from my notebook:
1.      Netherlands CPI down sequentially to 1.2% y/y (AUG) vs. 1.3% (JUL)

2.      Germany CPI down sequentially to 1.0% y/y (AUG) vs 1.2% (JUL)

3.       FTSE/DAX/Denmark all flashing bullish TRADE and TREND

4.      India’s IP growth rips higher sequentially in July to +13.8% y/y vs +5.8% June

5.      Chinese passenger car sales boom higher to +18.7 (AUG) y/y vs 13.6% (JUL)

6.      Chinese Equities bullish TRADE and TREND confirmed by the same on the Hang Seng

7.      Brazil inflation decels sequentially to 4.49% (AUG) y/y vs 4.6% (JUL)

8.      Brazilian and Canadian equities bullish TRADE and TREND

9.      Commodities (CRB Index) traded up on both dollar UP and dollar DOWN days this week

10.  Oil taking a run at breaking out above its TREND line = $75.64

11.  Copper and Gold remain bullish TRADE and TREND with Gold’s immediate term TRADE support = 1233

12.  US Treasury yields breaking out above TRADE lines this week (2yr TRADE line = 0.52%, 10yr TRADE line = 2.68%)

13.  Jobless claims breaking down through the 4wk rolling average = new immediate term TRADE

14.  All 9 sectors in our S&P 500 risk management model are bullish TRADE now

15.  Dubai World restructuring debt as opposed to piling more debt upon debt (Greece)

1.      Fed’s Balance Sheet expands w/w to $2.31 TRILLION (+$3.7B w/w)

2.      Philippines issuing $1B in Peso Bonds

3.      Argentina showing a +94% YTD rise in asset backed bond sales (most since default in 2001)

4.      Japanese Equities have crashed (down more than -20% since YTD peak)

5.      US Dollar remains bearish from a long term TAIL and intermediate term TREND perspective

6.      Greek stocks flashing a very negative divergence this week vs European equities (down -28% YTD and worst in world)

7.      Hungary and Latvia also flashing negative divergences vs. FTSE/DAX this morning

8.      Vietnam equities continues to flash very bearish versus Asian equities (down another -2.2% overnight)

9.      SP500 remains broken from an intermediate term TREND perspective with resistance up at 1144 (down -9.3% since YTD high)

10.  US equity volumes remained bone dry this week – volume studies bearish on TRADE, TREND and TAIL

11.  XLF (Financials) remain broken from an intermediate term TREND perspective

12.  Harrisburg, PA default pending if they miss the September 15th payment

Keith R. McCullough
Chief Executive Officer

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