Saturday, June 25, 2011

Tail Risk and the U.S. Debt Ceiling

On June 23rd “The Economist” magazine published an article titled,”The Mother of all Tail Risks,” that summarizes the August 2011 U.S. debt ceiling issue.  The magazine points out that a U.S. technical default would convulse markets.  Beyond that, the article points out that nothing else is certain.
The story discusses issues that could occur if a deal cannot be reached before August 2nd thereby triggering a U.S. debt default. The article points out that a country default would not confined to the European side of the Atlantic.  As a result of this issue, trading in credit-default swaps on treasuries has picked up with the price of protection increasing.

The article points out that beyond this issue, there is profound muddle about what default would entail.  I believe it is safe to say that a default would have serious consequences and create issues that likely cannot be fully anticipated.  I recommend a read of the article for a summary of some of the specific issues that may be created by an August 2011 default.

The irony of the situation is that politicians on both sides of the isle approved bailout spending that allowed banks and other financial institutions to avoid default both within the U.S. and outside of the U.S.  However as of today, a political agreement in Washington D.C. has not been reached that would prevent a default from happening to the U.S.

The republicans are pushing for ongoing tax decreases and a massive spending reduction raising fears and making the argument that if this not done the worldwide treasury market will implode causing U.S. borrowing costs and other nasty outcomes to occur.  The republican dogma is reasonably consistent with the Austrian school of economic thought which suggests government should be smaller and the chips shall fall where they may in a pure free market economy.  The democrats point out that a debt default would be a catastrophic.

The economic and political backdrop to this issue also revolves around a Keynesian economic viewpoint that due the ongoing economic weakness, now is not the time for a massive cut in government spending in an effort to balance the budget.  The Austrian economic school-Republican view is the opposite in that the best way to save and grow the U.S. economy right now is to keep taxes low, reduce the size of government and cut spending.  In our view, the battle here is about politics that are couched in economic terms.  I believe the risks are too great to play politics here.  However I am confident my opinion will not sway the debate or impact the political tactics being deployed here.

As of now, a compromise has not been reached that would mesh these views in a way that allows for a debt ceiling increase.  At this juncture, I am also confident I cannot reliability predict the outcome here over the next month.  While only a guess, my best guess is that a last minute compromise will be eventually reached. 

As a result, I believe the following will occur between now and August:

1)   The story is highly likely to stay in the news which increases the probability that volatility increases in the global financial markets (stock, bond, commodity, currency, etc.).
2)   I expect volatility to incrementally increase with the passage of time over the next 30 days and potentially beyond depending upon the eventual outcome here.
3)   The terms of the compromise will impact the volatility looking forward.  If for example, the issue is moved 90 days into the future, volatility may decrease based on such an outcome only to rise further as the calendar is moved toward a new deadline.

What should you do?

Whether you are an individual or professional investor the answer depends upon your unique circumstances.  I will not try to forecast all of the possibilities here.  What I recommend  investors do is to think clearly about their overall investment strategy and how they might react to and manage this uncertainty.  For stocks, at a minimum I would review the balance sheet, leverage, liquidity, solvency, cash and cash flow positions, etc. of companies I hold.  For bonds and other assets, I would do the same, which is to review the underlying fundamentals-financial position and other factors that may impact these securities.  In essence, do the homework on individual holdings. 

Beyond the work done at the individual security level, I recommend that investors consider how the overall systematic risk may affect their portfolio or assets as a whole from a pricing and market liquidity vantage point.  In other words, consider how overall markets may be affected and how will you react.  For example, what will you do if spreads increase in the credit markets and pricing is negatively affected in the equity market? 

If you are a CFO, you should do a similar exercise in terms of thinking about liquidity, market conditions, deal-making and funding costs, etc.

For now, the story will clearly stay in the news.  In summary, I believe it is wise to be as well prepared as possible for a negative tail event even if you consider the probability to be low.

Source:  The mother of all tail risks”, The Economist magazine, June 23, 2011

Wednesday, June 15, 2011

U.S. High Yield Market - how good can it get?

Fitch and Moody's recently reported slight upticks in their May 2011 high yield market stress metrics. Despite the increase, absolute measures remain well below peak recession period levels and are roughly on par with pre-recession levels.  More specifically, on June 1, Moody's pointed out that their liquidity stress test for May 2011 increased slightly for the first time in a year.  Fitch recently published stress test was included within an overview of the U.S. high yield market that provided history and a summary of key measures as follows:

1) Post the 2009 default spike (13.7%), defaults plummeted to 1.3% in 2010 and remain extremely low at 1.1% on a YTD basis at May 31, 2011.
2) Issuing company fundamentals have recovered from a deep recession driven slide as revenue and EBITDA have grown since mid 2009 through 2010.
3) Post the 2008 and 2009 recession, high yield market bond upgrades have trended up while downgrades have sequentially trended down.
4) The high yield market grew from $852B to $1,078B between December 2009 to May 2011.
5) Companies remain focused on liquidity as corporate cash to debt levels remain high while cap-ex spend remains below 2008 to 1Q09 levels despite a recent uptick.
6) Issuer credit terms tightened during 2008 and 2009 but have since loosened sequentially during 2010 and 2011.
7) Improved fundamentals and demand for yield drove a massive issuance rally during late 2009 to 2010.  This trend continues through May 2011. A significant issuance rally also occurred in the levered loan market as well.
8) A large volume of the overall market (57%) was issued during the most recent 29 months as of May 2011.
9) Refinancing dominated the use of proceeds during 2009 and 2010.  Growth financing has picked up some in 2011 and is expected to continue.

Fitch points out that on an overall basis, the market expanded with low rates and strong growth and raises the question of what comes next?  Fitch's data is consistent with other data, research and antedoctal evidence I see in this market (commercial and investment bank credit research, company comments as well as discussions with public company CFO's and institutional investors).

Conditions today in this market are currently benign as the current worry level in this market is low. As a result, spreads are narrow.  This therefore may be the most likely source of near-term risk at this juncture.  More specifically, since spreads are narrow and may not get much narrower an investor can get hurt here when and if spreads widen which could occur in front of fundamentals rolling over.

Ironically, the best way and time to buy these bonds may be when fear is great and fundamentals are in question resulting in wider spreads and lower prices. The last great opportunity here was the Fall of 2008 when spreads and yields blew out.  Yields in the market moved to approximately 30%, when fear was  high and market liquidity low.  As I write, fear is low, market liquidity is high and spreads are narrow against base rates (ten year treasury yields) that are low. 

For individual investors, the current period may or may not be the best time to be a buyer depending upon  risk tolerance, holding period and economic viewpoint.  Buyers here today are buyers because have to be (i.e. they are bond managers) or because they want to be (they are comfortable owning high yield bonds at 7% - 8% yields) and are betting that current conditions persist (spreads and interest rates remain where they are or narrow further) during their holding period. If economic growth continues at a slow steady rate allowing spreads and rates to remain stable, then a 7 to 8% return may look favorable relative to other alternatives in the stock and bond markets.

On the other hand, current favorable fundamentals in the issuers, the general lack of yield in the US credit markets and narrow spreads negatively skews the risk/return profile in this market in my opinion.   As a result, yield chasing may be risky as bonds may be overvalued or put another way, how much better can things get in this market (can interest rates go lower and/or spreads narrow further)?  What are you willing to bet on? The devil is in the details tied to individual bonds and overall market conditions.

As Fitch indicates, post the late 2008 to early 2009 financial crises, the market reopened which resulted in a big refinancing wave and amend and extend trend.   These factors and improving fundamentals caused defaults to plummet.  While much of the recent activity was to refinance existing debt, debt issuance tied to growth is expected to continue to rise looking ahead, therefore "growth" opportunities and transactions are expected to increase.

Some of the companies I have spoken to recently are now beginning to go into the investment mode again.  If the economy craters this sentiment will change.  As of now, companies are raising their heads out of their foxholes and are looking to make growth type investments.  Costco is looking to expand both in the US and internationally.  While casino companies are focused on Asia expansion, they are also now focusing on expansion possibilities in Illinois, Massachusetts, Ohio among other U.S. jurisdictions. Although not a high yield borrower, Walmart recently indicated they intend to selectively expand in the U.S. in a small store format to compete with the up and coming discount retailers. Are expansion plans as robust as they were before the crises?  Data I have viewed suggests the answer is no. However, evidence is mounting that activity may continue to pick up in the U.S.

Despite the favorable fundamentals in the market, looking forward, I am inclined to look elsewhere in the markets for positive risk/return opportunities owing to current perceived high valuations.


Foley, Keith, Tom Marshella, Adam McLaren and John Purchalla, "Liquidity-Stress Levels Increase For First Time in Nearly A Year", SGL Monitor Flash, Moody's Investor Services, June 1, 2001

Verde, Mariarosa, "Credit Trends & Default Outlook", Credit Market Research, Fitch Ratings, June 9, 2011

Thursday, June 9, 2011

Costco April and May 2011 Comps

Costco continued to post positive comps in both U.S. and international stores during April and May 2011.  Comps for May 2011 on a total comp and comp ex gasoline were:

U.S. total and ex gasoline                  11% and    6%
International total and ex gasoline       21% and 12% 
Total U.S. and ex gasoline                 13% and   7%

Comps for April 2011 on a total comp and comp ex gasoline were:

U.S. total and ex gasoline                  11% and    6%
International total and ex gasoline       16% and 10% 
Total U.S. and ex gasoline                 12% and   7%

Traffic in our local neighborhood Costco remains strong despite severe economic conditions that exist in Las Vegas.  Local observed Costco traffic patterns have remained strong during the last two years of the recession.  Local gasoline lines appears to have expanded in recent months as gasoline prices have increased.

The latest data points are consistent with positive accelerating trends reported by Costco during recent months.  Costco comps have remained positive after turning negative during the peak of the recession in late 2008 to early 2009.  Prior to the 2008 to 2009 recession trough, Costco had posted consistent positive comps for several years.  The beat goes on!

Friday, June 3, 2011

Walmart Share buyback announcement

Honey I shrank the share count!

Walmart (WMT) announces a $15B share buyback.  Based on my quickie calculations at today's price this is approximately 8% of the outstanding shares.  

WMT's headline problem is that it's customers in the U.S. are facing financial stress. WMT recently indicated that many of it's customers run out of money before the end of the month.  A grim situation indeed.  U.S. unemployment numbers were published today as well which is more of the same type of story. 
On the positive front, WMT has experienced strong international sales and plans on continuing to expand overseas in the next few years.  WMT is also looking to expand it's small store format in the U.S. as the "dollar" stores have taken a bite out of it's business in the U.S. over the last couple of years.

Over the last two years the shares have produced bond like returns.

The share buyback

Based on my math, after this buyback is complete, the company will have shrunk the company share count approximately 20% over a 5 year period.  A significant pace.  Currently the stock is trading at about 10x to 11x one year forward consensus earnings estimates.  The current consensus view is that WMT will grow EPS approximately 10% over the next five years.  The forward valuation multiple is currently less that the S&P 500.  The point can be debated, but I believe a case can be made that the valuation here relatively inexpensive at this level.  Looking ahead, if this turns out to be the case, personally I am comfortable with share buy backs at or below fair value for the company.  If WMT can increase operating earnings over the next 1 - 3, 4, 5 years above current consensus, the buyback valuation question will look even more favorable.

S&P's current valuation estimate for WMT, before today's announcement was $61 per share with a one year forward valuation estimate of $65.  Wall Street's current one year forward valuation estimate per share, before today's announcement was approximately $61.  The stock is currently trading between $50 to $55, so the buyback valuation question looks reasonable.  From a balance sheet perspective, the buy back will not likely cause stress as WMT will maintain it's current bond ratings.

Brief Overview

Today's negative unemployment news is already painfully well known by WMT customers and is not good for WMT's customers who are already facing much economic stress. At the same time, unemployment data is a lagging economic indicator.  I have no doubt that the economic bull and bear debate will continue.  Headline consumer related economic data that is followed by the public, politicians and media has rolled over lately due to food and energy prices as well as the Japan earthquake, among other factors.  The folks on the right also want to push austerity measures that appear to be poorly timed based on current U.S. economic conditions.  The combination of a calm bond market and sluggish employment data suggests that now may not be the time for this economic remedy as overall economic growth has slowed.

Despite the headlines, there are other economic indicators that tell a more positive story.  A recent example is illustrated by a June 1, 2011 analysis by Moody's that tracks liquidity stress in lower rated corporate bond issuers.  While the stress index ticked up very slightly in May 2011 vs. April 2011, on an absolute basis, the measured stress level is far below where it was during the peak of the crises (September 2008 to March 2009).  On a measured basis, the index now sits 20 vs. a recent crises peak of approximately 100.  You are not likely to see see these numbers in the news headlines or discussed by the media as they do not produce fear and negative hype.  In short as of now, there is not much financial stress in U.S. corporations today as this index sits at pre crises levels.  Since it did tick up very slightly M-T-M it is worth monitoring.  While I say this, I am not yet losing sleep over the number.

In my view, the big overall challenge for WMT is the law of large numbers as it is extremely difficult to grow a company this size.  The positive for WMT is it's corporate finance actions (dividend increase and stock buyback).  The stock currently trades at a 3% dividend yield.  Economic difficulties for WMT's U.S. consumers are likely to continue for the time being.  These things are well known and likely priced into the stock.  If and when the day comes that fundamentals in the U.S. show some sign of improvement at the margin, expectations may change here and the stock may move up some.  On the other hand, ongoing negative US comps or worsening results can pose a risk to the current stock price and assumption set.

With WMT, there is a ton of news, opinions and awareness, so many folks have viewpoints here.  In short, mine is to hold on for a while as current news is negative and expectations appear to be reasonably low. The stock is a stalwart.  In my opinion there is some room for stalwarts in portfolios.   What attracts me about this situation is the cheap looking forward valuation combined with the fact that the share count will likely continue to decrease which creates an ongoing anti-dilutive positive impact for existing shareholders, in my view.  It may also be worth noting that both Mr. Warren Buffet and Bill Gates hold big positions in this stock, based on recent SEC filings.

Thursday, June 2, 2011

Overview of Investment Approach

My approach is bottom-up, value oriented, fundamental and research-driven that is focused on debt and equity investing.  My belief is that my “main street” location encourages independent thought that sets me apart from the crowd on Wall Street.

The strategy is to utilize and/or perform in-depth fundamental investment research  to assess the current and possible future value of public company debt and equity.  The focus is identifying undervalued and overvalued securities over an investment horizon that is generally a year or longer.  In situations where investee companies have demonstrated the ability to create or increase positive intrinsic value over extended periods of time, I may hold equity positions for multiple years. I utilize a bottom-up approach and one that emphasizes security selection in an effort to produce absolute returns. I seek to identify and invest in companies with longer-term secular growth characteristics and may also take positions in cyclical businesses, M&A arbitrage transactions, recapitalization's, spin-offs and selected distressed securities in an effort to reduce the overall risk of the portfolio and covariance between individual portfolio positions. 

I  focus on investing in mid-cap and large-cap U.S. equity.  I also invest in small-cap U.S. equity in select situations.  I seek to identify and invest in companies where a perceived possible significant price to future value gap is believed to exist.  A key objective is to identify and take concentrated positions in situations where I believe above average returns can be obtained over an extended period of time.  Initial positions in public company equity are often established when individual company news is bad or other negative events have taken place that have reduced forward expectations to the point where a future positive price to value gap is perceived.  I also look for opportunities to take equity positions in companies that are out of favor with Wall Street where I believe significant risk adjusted return possibilities can materialize over our investment horizon. 

A bottom-up approach is utilized that is focused on analyzing numerous potential investment opportunities-positions on an ongoing basis in order to identify a select number of mispriced securities that can provide potential future favorable returns. Although I monitor overall economic and market conditions on an ongoing basis, I generally do not focus on forecasting the overall direction of the economy or markets. Historically, I have utilized periods of significant negative market and/or individual stock price volatility to establish positions in individual securities that meet longer-term valuation targets and overall investment criteria.

On a select basis I may take short positions.  The overall portfolio approach is designed to reduce market correlation and produce absolute attractive returns in a variety of market conditions and economic cycles.  My portfolio generally consists of 20 positions or less with select unique positions with the most favorable risk/return and volatility characteristics potentially being sized at 5% to 10% of the overall portfolio.

I have researched and invested in a variety of market caps and companies included in the finance, gaming, industrial, lodging, medical device, real estate, retail, technology and pharma industries, among others.  I have also invested in various commodities including oil, natural gas and timber.  I seek favorable risk adjusted returns in these areas when perceived opportunities exist for standalone returns.  I have also utilized commodity positions for overall portfolio hedging purposes. 

I have invested in a variety of fixed income oriented securities including convertible and high yield debt, MLP’s, mortgage securities and REIT’s, among others.  I invest in select fixed income security categories when perceived favorable risk adjusted return opportunities can be identified.  My portfolio strategy also includes holding cash that can be utilized to take positions in securities with identified longer-term significant value to price gaps that are typically created by near-term significant downward market or stock-bond price volatility.

I utilize self generated proprietary company and industry research along with select debt and equity research of others.  Research techniques also consist of maintaining and/or monitoring company models, participating in company conference calls and interviewing company management teams when necessary.  Additional techniques include monitoring sell side assumptions, company and industry news flow and regulatory filings, among others.  

Tuesday, April 12, 2011

Current Thoughts on Oil Prices

(originally published February 2011)

Not long ago I did an interview with a reporter who asked me if I thought higher oil prices would hurt consumers and more specifically consumer spending in the gaming industry on the Las Vegas Strip.  I was also asked if I thought oil prices would continue to increase.  The conversation occurred before the recent revolution emerged in the Middle East.  The concern over energy prices was triggered by the price rise in energy following the Federal Reserve’s announcement to move forward with QE2.

My answers to the questions are as follows:

Will higher oil-gasoline prices hurt consumers and more specifically consumer spending within the gaming industry on the Las Vegas Strip?

My answer is a qualified yes as higher energy costs impact household budgets and dollars available for overall and discretionary consumer spending.  More specifically, for activities such as discretionary spending on the Las Vegas Strip the negative impact of higher gasoline and energy prices can come from at least four levels as follows:

1)    The direct impact on the cost of a trip to Las Vegas via plane or automobile.
2)    The negative impact on household budgets due to higher fuel costs.
3)    The negative impact on other goods and services consumed by households as the price of oil affects many if not most input costs of many goods and services in the economy.
4)    The negative impact on overall consumer confidence.

In my opinion, the nuance here is that pace of change in energy prices may be as important as the magnitude of the change.  My sense is that various supply and demand factors can successfully adjust to more gradual upward moves in energy prices over time which dampen the impact of the change itself, while sharp price rises are generally more damaging to consumers due to the lack of short-term ability to adjust to the change.  An example is the type of cars consumers drive vis-à-vis gasoline consumption in light of gasoline prices as car ownership patterns are more adjustable to long-term changes in gasoline prices than short-term changes. 

Do I think gasoline prices will continue to rise?

At the time I was asked the question revolution had not broke out in the Middle East.  In light of recent events in the Middle East the answer appears to be yes for the time being.  At the same time I must say that I cannot reliably predict the price of oil and gas beyond the current period of turmoil in the Middle East.  At the time I was asked this question I sat down and penned a partial list of factors that impact oil and gasoline prices as follows:

1)    OPEC production decisions and activity.
2)    Actions by Iran and Venezuela.
3)    The value of the U.S. dollar.
4)    Non OPEC supply factors.
5)    Weather.
6)    Chinese, U.S. and worldwide demand factors.
7)    Hedge fund industry speculation activity.
8)    Refinery outages.
9)    Levels of worldwide economic growth.
10) Peak oil issues.
11) U.S. spring – summer peak driving season.
12) Terrorism.
13) Federal Reserve actions.
14) Government actions in regard to energy prices and supply.
15) The price of oil and gasoline itself.

I can now add revolutions in North Africa and the Middle East.  In other words, a whole host of factors drive energy prices that are not easy to reliably predict over time so in my opinion a question that arises in connection to energy price movement is, to hedge or not to hedge? The answer is, it depends!

Thursday, April 7, 2011

March 2011 Costco and U.S. retail comps

Today, March 2011 retail comps were reported. We found the Costco comp data reported today to be solid. Costco's stock is up today as the company reported better than expected comps (same store sales for stores open at least one year) for March 2011 despite a difficult y/y comparison due to a positive March 2010 comp and the effect of the 2011 Easter calendar shift. For Costco, March is the latest in a recent string of better than expected monthly comp results.

Total Costco comps for March 2011 were 8% (adjusted for currency and gasoline effect) and 13% on a gross unadjusted basis. The 8% comp was better than the 7.4% comp expected by Wall Street.
Costco's comps have sharply rebounded since their late 2008 to July 2009 recession period lows. During the back half of 2010 through March 2011 Costco's comp's accelerated despite difficult y/y comparisons.

Our monthly Costco comps tracker which includes total y/y comp data and y/y comp data adjusted for currency and gasoline impacts. When looking at the numbers, please be aware that the recent string of positive monthly comps is on top of prior years numbers that were positive, which makes for pretty impressive recent numbers. It should also be noted that International trends remain strong.

Looking ahead into the summer of 2011, all eyes will remain on the potential negative impact of high gas prices and food inflation for retailers. Our best sense is that Costco may benefit from additional increases in gas prices due to positive inventory effects. As for food, we expect Costco to be less affected than other retailers and consumer related companies due to the more non-discretionary nature of their business and ability to maintain their margin strategy vis-a-vis other consumer related companies.

If high gasoline and food prices persist, we expect discretionary consumer related companies to be more negatively affected than Costco.  For the retail industry as a whole, today's comp report was better than expected.

Monday, March 7, 2011

Chinese Lodging Industry Growth - an unprecedented opportunity


We recently summarized our thoughts on the Chinese lodging industry in a comprehensive report.  The work focuses on growth and development of the lodging industry within China and to a lesser degree the Asia Pacific region The work presented in the report is a combination of company, industry and economic analyses that address what we believe are the key issues tied to the ongoing development of the Chinese lodging industry. The project work is independent and is not sponsored in any way by any of the companies or institutions mentioned in the report.

Over the past 20 years, China and the Asia Pacific region have experienced rapid development and significant economic growth.  China is viewed today as an emerging world economic power that is expected to develop at what may be the highest rate of economic growth in the world over the next decade and beyond.  At the current forecasted growth rate, China’s GDP may surpass the size of U.S. GDP as early as 2020. 

With this growth, come challenges and a massive development story as millions of residents move from rural to urban areas and reach middle class status.  Due to the size of the country’s population (approximately 1.3 billion), the magnitude of these and other shifts as drivers to the ongoing overall development story is unprecedented.  The influences of many of the major themes within the Chinese development story are likely to have a significant impact not only on China but also the region and world as whole.  Driven by the significant growth backdrop and positive structural tailwinds, multi-national companies in a variety of industries view China as a significant market and continue to invest in both the country and region.  These and other large long-term development trends within China and the region are expected to continue to provide a positive, powerful backdrop for long-term industry growth for many industries including the lodging industry over the next decade.

We sourced relevant information for the topics covered in the research from companies, investment banks & consulting firms that are participants in and/or focused on China and the Asia Pacific region.  We have also sourced information from government databases within Asia, China and the U.S., relevant books written about the region, industry trade organizations and various news outlets, among other sources.  We have also held discussions with institutional investors, industry analysts and industry executives that are active participants within the China and the Asia Pacific region. 

As the subject of China’s major social, political and economic trends vis-à-vis the lodging industry is quite large and complex, it would be easy to produce a voluminous report; instead we have summarized the key issues. As a result, this report serves as an entry point for further research into China’s lodging industry.    We have provided a list of sources to allow for further reading and research on topics covered in this report. We have also provided a summary of current and forward looking economic and development issues. 

Executive Summary

Despite some fear of an economic slowdown in 2011 (being engineered by the Chinese central government in an effort to control inflation), long term growth forecasts over the next 5 to 15 years remain intact.  The current size and pace of economic growth over the next decade means that that Chinese GDP could surpass the size of U.S. GDP as early as 2020.  This record-breaking pace of economic growth and overall development creates its own set of risks and issues.    

Within the overall Chinese emerging market development story, the lodging industry has grown at a significant pace, buoyed by the positive economic backdrop and other factors such as foreign travel and investment in the region, growth of the middle class and development of the domestic tourism industry, among other factors.  During 2010, the lodging industry in the Asia Pacific region and China recovered at a significantly stronger pace than the remainder of the world.  Our analysis provides a snapshot of the growth of the lodging industry within China and to a lesser degree the Asia Pacific region (ACPC).  To understand the development of the industry, we believe one must have some context as to the economic and development environment within China and Asia. 

The goal of this report is to provide an introduction and overview of the Chinese lodging industry and key companies that operate within the country and region as well as insight into some select current and essential issues.  Key points and findings of this report are:

     Y/Y RevPAR growth in ACPC and China have significantly surpassed y/y RevPAR growth in Europe and the U.S. during 2010.  YTD y/y RevPAR growth as of 10/2010 is approximately 7%, 3%, 24% and 37% for the U.S., Europe, ACPC and China.  The above world trend for ACPC and Chinese RevPAR growth continues today.  The 2010 recovery in ACPC and China RevPAR follows the 2009 downturn, that was triggered by the short term supply glut tied to the 2008 Olympic Games and 2008-2009 worldwide economic downturn.