We've seen this before (1970's).  The current administration is running out of time.


Health insurance premiums are rising, poverty is up, and the nation's unemployment rate is nearly 10% and now the government is expected to announce this week that more than 58 million Social Security recipients will go through another year without an increase in their monthly social security benefits.


Just one more check mark in the notebook to support a significant deceleration in consumer spending over the next three to six months.  Not to mention the political back lash from this move.


As a point of reference, social security and Supplemental Security Income benefits are adjusted annually to reflect the increase in inflation; the average CPI-W for the third calendar quarter of the prior year is compared to the average CPI-W for the third calendar quarter of the current year and the resulting percentage increase represents the percentage that will be used to adjust Social Security benefits beginning for December of the current year.


The projection will be made official on Friday, when the Bureau of Labor Statistics releases inflation estimates for September. Those on social security haven’t had a raise since January 2009, and now it looks like they won’t be getting one until at least January 2012.


While the government may not see inflation, the average American is experiencing inflation.  Just look at the chart below for a broad measure of inflation -  the CRB Foodstuffs Index. 


The economy is also running out of time as it relates the waning impact of stimulus on the economy; the stimulus life lines that have supported consumer spending for the past 24 months are coming to an end.

  • Health care: The Recovery Act set aside $87 billion to assist states covering their soaring Medicaid costs.
  • Tax credits: The Recovery Act boosted the Earned Income Tax Credit and Child Tax Credit, as well as put more money in the pockets of low-income workers with the Making Work Pay credit of $400 a person. These tax benefits end this year.
  • Needy children: The stimulus program also gave $2 billion for child care subsidies and another $2.1 billion for Head Start, an early learning program for needy children, both of which end after September 30.  
  • Homeless: The act provided $1.5 billion over three years to prevent homelessness and find places to live for those without a roof over their heads. It increased the maximum food stamps benefit by more than 13% for several years and also sent $150 million to the states for emergency food assistance in 2009.
  • Unemployed: The Recovery Act pushed back the deadline to apply for extended unemployment insurance, which is now set to run out at the end of November.  Jobless benefits alone are credited with keeping 3.3 million people out of poverty last year, according to the Center on Budget and Policy Priorities.

Howard Penney

Managing Director


TIME IS RUNNING OUT - crb foodstuffs



A surprisingly strong month with mostly hold driven market share moves.



For what's supposed to be a seasonally slow month, September came in quite strong with total gaming revenues growing 39% to $1.9BN - just below August's numbers.  MGM stole the show in September growing 83% YoY. This shouldn't be a surprise given MGM's pending IPO, new property management and aggressive credit extensions. MPEL enjoyed its second month in the top 3. Wynn lost the most share in September due to a combination of factors - including difficult hold comparisons and low hold.


That being said, September is history as all eyes are now on October's record pace to break HK$20BN.  Below is the detail for September.



YoY Table Revenue Observations


LVS table revenues increased 35% with growth coming from a 42% increase in VIP revenues and a 23% increase in Mass revenues.

  • Sands grew 3%
    • VIP revenues declined 2% despite only a 1% decline in Junket RC volume
    • 13% increase in Mass revenues
  • Venetian was up 43%
    • VIP revenues increased 54%
    • Mass revenues increased 29%
    • Junket RC increased 15% YoY.  Assuming 22% direct VIP play volume, we estimate that hold for September was 2.6%.  However, last September, assuming 17% direct play, the hold percentage was even worse at 2.0%.
  • Four Seasons was up 130%
    • Mass revenues grew 28%
    • VIP revenues increases 158%, in-line with growth in Junket VIP RC volumes
    • If we assume over 50% VIP turnover came from direct play, hold was 3%, compared to estimated hold of 2.3% in September 2009.

Wynn Macau/Encore table revenues were up 21%, driven by a 16% increase in VIP revenues and a 44% increase in Mass revenues

  • Junket RC volume increased 43% compared to a market increase of 42%, so it does appear that if not for hold issues, Wynn would have held their own
  • Assuming direct play volumes at Wynn were roughly 12%,  Wynn's hold was 2.6% in September compared to 3.1% hold assuming the same direct play volume ratio in September 2009.

MPEL table revenues grew 29% with the growth fueled by 98% growth in Mass and 21% growth in VIP

  • Altira was up 19%, due to a 15% increase in VIP revenues and a 105% increase in Mass
    • VIP revenue growth was entirely due to favorable YoY hold comparisons.  VIP RC was down 16% YoY. 
    • We estimate that hold in September was 3.5% vs. 2.5% in September 2009
  • CoD table revenue increased 35% YoY, driven by 97% growth in Mass and 26% growth in VIP revenues
    • Mass revenues were $36MM
    • Junket VIP RC increased 41%
    • CoD played lucky in September, but they also played lucky last year.  If we assume 18% direct play at CoD, hold was 3.2% in September vs. an estimated hold of 3.6% last year.

SJM table revenues grew 37%

  • Mass was up 31% and VIP was up 40%
  • Junket RC volumes increased 71%
  • SJM's hold was only 2.7%, compared to a very low hold 3.3% in September 2009.  October will have an easy hold comparison since last October's hold rate was only 2.55%.

Galaxy table revenue was up 59%, driven by a 68% increase in VIP win and a 7% increase in Mass

  • Starworld's table revenue soared 103%, driven by 112% growth in VIP revenues and 30% growth in Mass
  • The Group RC volumes were up 30% while Starworld RC volumes increased 39%.  VIP revenues for the Group and Starworld benefited from strong hold.  September hold for the Group and Starworld was 3.2% and 3.46%, respectively, compared to low holds of 2.5% and 2.3% last year.  October 2009 hold rates were normal.

Not surprisingly, MGM reported the strongest growth in the month of September, with growth of 86%

  • Mass revenue growth was 56%, while VIP revenues grew 97%
  • VIP RC grew 85%
  • Hold appears to have been normal in September at roughly 2.9%


Table Market Share


LVS table share dropped 20bps sequentially to 19.1%

  • LVS's share of VIP revenues increased 20 bps in October, along with a 20 bps increase in LVS's share of Junket RC
  • Mass share increased by 100 bps to 26.3%
  • Sands market share increased by 35bps off of a 63bps increase in VIP share
  • Venetian lost 209bps to 9.5% sequentially, their lowest share in 12 months
    • Venetian's share loss was mostly driven by a 210bps decrease in VIP, while Mass share lost 53bps.
  • FS share gained 150bps of share to 3.4% due to a 218bps increase in VIP share

WYNN's table share decreased to 12.0%, its lowest share in 10 months; it was also below the TTM average pre-Encore opening market share of 13.8%.

  • Mass market increased 115bps to 10.2%
  • VIP revenue share decreased 2.9% to 12.6% sequentially. Part of the decrease was attributed to low hold, as Wynn's VIP RC share only decreased 90bps to 13.9%
  • Wynn's VIP share fell to 5th place behind SJM, MPEL, LVS and Galaxy

Crown's market share was flat sequentially at 16.3% in September

  • Both CoD's and Altira's share were also flat sequentially at 10.7% and 5.6%, respectively

SJM's share increased by 125bps to 31%

  • SJM's share gain was entirely driven by a 220bps of share in VIP to 28%
  • Mass share dropped 100bps to 40.2% sequentially

Galaxy's share slipped 1% to 12.1%, driven by a 150bps decrease in VIP share

  • Starworld's market share decreased 39bps sequentially to 10.5%, due to a 64bps decrease in VIP share
  • Junket RC share decreased 100bps to 12% for Starworld and decreased 80bps for the Group

MGM's share increased by 192bps to 9.6% - MGM's best share month since August 2009

  • MGM's share gain can be attributed to a 63bps increase in Mass and a 235bps increase in VIP share
  • RC share increased 95bps


September Slot Revenue Observations

Slot revenue grew 33% YoY in September reaching $94MM, the second best month in slots following August 2010

  • Wynn experienced the largest growth of 60% to $18MM
  • SJM, MPEL and Galaxy's slot revenue all grew around 55% YoY
  • MGM's slot revenue increased 38% to $11MM
  • LVS having the largest base also had the slowest slot growth of 33%, which is nothing to complain about






Bear/Bull Battle: SP500 Levels, Refreshed...

POSITION: SP500 (SPY) no position; long Volatility (VXX)


It’s quiet out there today so all of the price, volume, and volatility scores in my model mean less than they would on an ordinary Monday. That said, market prices don’t lie; people do – and the risk in analyzing today is prefacing all analysis with my own yeah buts.


For the last few weeks, I’ve been looking for 2 explicit price levels in the SP500 and VIX, respectively, to signal that we are entering the danger zone of heightened probability of an immediate term crash. That’s not to say a crash is likely. It’s simply to say that it’s likelier than it was last Monday.


Those 2 risk management levels are: 

  1. SP500 > 1164
  2. VIX at/below 20 

As of 1PM EST today, the VIX is trading below 20 and the SP500 is testing 1167 on the upside. While the most anti-climactic of all scenarios would be if today was the lower-high for the SP500 (versus it’s April high – see chart), I don’t foresee that being the case. I’m registering 1174 now in terms of immediate term TRADE upside, and as hard as it is to wait and watch, that’s what I am going to do.  Shorting the SP500 in the face of QE and M&A requires patience.




Keith R. McCullough
Chief Executive Officer


Bear/Bull Battle: SP500 Levels, Refreshed...  - S P

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Sell-Side Risk Management: "Rooting For Massive Upside"

“Good Morning – Bond market is closed today.    Third quarter reporting picks up this week with tech and financials heavy on the schedule.  Last week’s rally was a fear of the QE3.  This week we will need some earnings, and guidance to keep the upside momentum rolling.  Our Guy Bianco expects a strong 3Q earning season, and he has been a monster bull.    1164 was Fridays high, and the months high.   Plenty of room till we get to 1175.     Sorry nothing earth shattering here.    I am rooting for massive upside surprises out of Fins, we’d all be happy.”

-BofAMLCO trader note


Keith R. McCullough
Chief Executive Officer


Sell-Side Risk Management: "Rooting For Massive Upside" - 1


While last week was a great week for restaurant stocks, the looming cloud of food costs must be accounted for.


Quick service and casual dining stocks climbed 2.5% and 3.4%, respectively, over the week ended Friday.  Important news items going into this week include:

  • McDonald’s is bringing back the McRib on November 2nd for six weeks.  This is in line with MCD’s continuing approach of taking on competitors head on.  Its recent release of the burrito-sized Chicken Snack Wrap was clearly aimed at the Chipotle customer. Burger King has seen recent success with its “Fire-Grilled Ribs” and MCD will look to gain a share of that success with the McRib release.
  • Dine Equity signed a new $950 million senior secured credit agreement. 
  • Brinker International’s stock could climb about 25% in the next year, according to Barron’s article published this past weekend.
  • Surging corn and meat prices are driving costs higher for U.S. retailers.  The U.S. cattle herd in July was the smallest since 1973.  Beef is more costly at current prices than it has been in 25 years. 

TALES OF THE TAPE - stocks 1011




Howard Penney

Managing Director



October 11, 2010


Fair amount of smaller events in the news today likely to be overshadowed by M&A announcements from last week. 




- Telluride became the first city in Colorado to the ban the distribution of plastic bags by grocers and retailers.  Recall that this trend has been gaining steam, with several other U.S cities including San Francisco, Brownsville, TX, Malibu, Fairfax, and Palo Alto all banning plastic.  In some cities like Washington, DC there is actually a nickel charge for each bag a consumer chooses to take.


- Expectations for Gap’s analyst meeting on Friday may be on the rise now the company’s logo change has been met with controversy. Gap’s president Marka Hansen noted that, “Our brand and our clothes are changing and rethinking our logo is part of aligning with that.”  After all, we’re pretty sure the logo change alone isn’t going to move the mall traffic needle.  There is definitely more to come from this story…


- With an increasing interest in ‘green’ products, the Federal Trade Commission has proposed revised guidelines for marketers in order better define and substantiate such claims as not to deceive consumers. In a surprisingly democratic move, the commission is soliciting public input until December 10th at which time it will make changes final. Given all the permutations of environmentally friendly product, material, and manufacturing, the commission may among those hiring into the holidays just to sort through the feedback.





SHOO Upped Betsey Johnson Investment - Steve Madden, who has upped his investment in Betsey Johnson LLC from covering her credit debt to buying her trademarks, has no plans to make major changes. Last month Steven Madden Ltd. took over a $48.8 mm loan to Johnson’s firm and has since absolved the loan in exchange for ownership of the brand’s intellectual property, including the moderate collection Betseyville. Madden now has licensing deals with the designer’s company, Betsey Johnson LLC, for it to produce the clothing and operate her boutiques and get royalties from Johnson’s firm and its other licensees. According to sources, Madden pumped in $3 mm for five years to help with her firm’s operating needs. Steve Madden Ltd. gets a 10% equity in that operating company in exchange. Beyond the initial investment, Madden said the strategy is to ramp up marketing and fortify the daytime dress and shoe businesses.  <>

Hedgeye Retail’s Take:  Not a bad move as Madden looks to diversify into new product categories and away from the core brand.  With that said, given the amount of debt that Johnson was saddled with, we wonder how much cost cutting and streamlining will be needed to get the business moving in the right direction.


Wal-Mart Plans to End Profit Sharing Contributions - Wal-Mart Stores Inc., the largest U.S. private employer, plans to end profit-sharing contributions in February, replacing them by matching some of the dollars employees put in their 401(k) retirement plans to pare expenses. The retailer will match contributions up to 6% of eligible employees’ pay, according to a memo obtained by Bloomberg News. Previously, Wal-Mart automatically put up to 4 percent of pay into the profit-sharing plan. The switch by Wal-Mart, which has about 1.4 million U.S. employees, will only benefit those who are in the plans, so staff will need to join to profit from the move. <>

Hedgeye Retail’s Take:  While cost savings is the leading factor here, WMT may actually be late to the party of those shifting retirement plans towards 401k from more traditional profit sharing plans.  The focus here however, still remains on driving the topline rather than cutting costs.


New Reef Brand President Has Tough Road Ahead - New Reef President Jeff Moore, who began work at the brand last month, could have his work cut out for him. While the brand maintains a leadership position in the flip-flop category, competition is increasing and cutting into Reef’s business. Brands such as Sanuk and Olukai have been pressuring Reef's business. Moore said he hoped to firm up the operations by shifting the at-once business to a futures strategy. Moore said he hoped to entice surf shops with special product that will be available only through pre-orders. <>

Hedgeye Retail’s Take:  What was once thought to be another “lifestyle” growth brand for VFC, now seems to be flip-flop company under pressure.  Product diversification probably still makes sense here as the brand looks to de-seasonalize its core biz.


American Apparel Appeases Lender With Key Management Hiring - Beleaguered US chain American Apparel has hired Blockbuster executive Tom Casey as acting president, in line with a pledge to lender Lion Capital to secure key management talent. <>

Hedgeye Retail’s Take:  We’re still scratching our heads on this hire, who comes with substantial Blockbuster restructuring/bankruptcy experience.  We’re pretty sure Lion Capital is hoping Mr’ Casey learned what NOT to do in order to survive.


Maidenform and Time Three Clothier Sue Over Shapewear Design - Innerwear giant Maidenform Brands Inc. and Times Three Clothier LLC are suing each other over the design of shapewear that launched last year. The litigation involves Maidenform’s multimillion-dollar Fat Free Dressing by Flexees line and Yummie Tummie, a contemporary shapewear line from Times Three Clothier that has estimated wholesale sales ranging from more than $8 mm to double digits. <>

Hedgeye Retail’s Take:  Nothing like litigation to settle a dispute over laziness.   If consumers were just a bit healthier, this whole debate wouldn’t even matter. Instead, we’ll continue to monitor shapewear as yet another “lazy” trend.


CSN Stores Finds A Way to Make Money From Consumers Who Don't Buy Online -  CSN Stores launched a paid ad platform that enables bricks-and-mortar furniture retailers to buy ads on CSN sites that also sell furniture.  More than a year later, the company says the program delivers to consumers visiting the CSN site the most relevant, localized information. CSN says the ads do not cannibalize its web sales, even though one study of the program suggests the program boosts the number of visitors to competing retailers’ sites. The Get It Near Me ad platform launched in August 2009 but the company has been actively pursuing sales only for the last five months. The program is open only to retailers with a bricks-and-mortar presence, but retailers that have an e-retailing arm in addition to a retail storefront also are allowed.  <>

Hedgeye Retail’s Take: Give credit where it’s due, CSN started up in 2002 and has grown into a Top 3 online U.S. retailer of home and office goods. While the ad model may have worked well with so many retailers lacking an e-commerce presence initially, as that mix shifts, it’s likely that so too will CSN’s model. It may be decidedly cheaper for retailers to partner with CSN given its web prowess – particularly if the company decides to pull the plug and key traffic feed for bricks-and-mortar retailers.


Specialty Retail Adds Jobs Into Holiday Season While Department Stores Cut - Specialty retailers added jobs in September while department stores eliminated positions, the Labor Department said Friday. Specialty retailers added 2,500 jobs to employ 1.39 mm in September. Department stores eliminated 2,100 positions to employ 1.49 mm. In the broader economy employers cut 95,000 jobs in September, driven in part by the elimination of a significant number of temporary census jobs. <>

Hedgeye Retail’s Take: With shoppers buying ‘closer to need’ we expect hiring to accelerate from both specialty and department store retailers following the likes of Kohl’s announcement to hire over 20% more temporary workers this year after multi-year reductions at the employee level.


Import Cargo Volume Expected to Slow Again in October - Import cargo volume at the nation’s major retail container ports is expected to be up 11% in October over the same month last year and should continue to see year-over-year growth even as seasonal levels wind down through the remainder of 2010. While October has long been the busiest month of the year as retailers rush to fill shelves with merchandise for the holiday season, the peak shifted to August this year. The change came both because of a backlog in cargo from earlier in the year after ocean carriers were slow to replace vessels taken out of service during the recession, and because retailers brought merchandise into the country early to avoid the risk of delays this fall. September was estimated at a 20% increase while October slowed to 11% .  <>

Hedgeye Retail’s Take: Slowing volume has been largely expected as demand for 2H inventory came earlier in light of anticipated capacity constraints as well as a modest shift to air freight.


Jewelry Industry Pressured by Gold Prices - The jewelry industry is scrambling to adapt as the price of gold hits new peaks. With economic uncertainty high and interest rates at historic lows, investors have sought refuge in the precious metal, which has risen almost 23% this year. The surge in gold has forced jewelers to turn to lower-cost metals such as brass and copper, adjust with designs that require less of the precious metal and expand the use of cheaper mixed materials such as a combination of gold and sterling silver called “gilver.” Lowering the price of fine jewelry by incorporating silver is no longer full-proof as silver hit a high last week, of $23.52 and has increased 27% this year. <>

Hedgeye Retail’s Take: Raw material costs are up across industries, but turning towards intentionally degrading the quality of goods as is the case with ‘gilver’ is rarely successful catalyst to drive demand.



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%