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Why Investors Shouldn't Stay in Hotel Stocks


IHG, Marriott, Starwood all facing tough times.

Minyan Morning Memo

One to watch: Shares of InterContinental Hotels (IHG) are retreating after the world's largest hotel operator announced second quarter earnings early this morning. The 232 year old firm, whose holdings include Holiday Inn and Crowne Plaza in addition to its eponymous chain, swung to a loss on impairment charges and an environment its chief executive called "challenging".

As the action in Marriott (MAR) and Starwood (HOT) stock over the past 2 days demonstrates, investing in inns is a volatile proposition, and InterContinental's comments today don't indicate an upturn in lodging is eminent. Once the macro climate improves, however, the company will be well placed -- Holiday Inn is undergoing a $1 billion face lift and the huge China market has vast potential. In the meantime, times are tough for the industry, a situation even the most (in)famous hotel in America isn't immune to.

What just happened: Stocks -- if not Her Majesty's subjects -- went backwards yesterday, markets slipping marginally following last week's large gains and ahead of the Fed. State Street (STT) hurt Wall Street, its shares down 2.4% even as other financials rose. Goldman downgraded Best Buy (BBY), seeing better buys elsewhere. And it was right, said Fred: retailer Fred's (FRED) was up over 6% as it benefited from a Barron's bounce while Freddie Mac (FRE) more than doubled.

What's happening: Asia ended up as the Shanghai index snapped a four day skid. Europe is trading at session lows. Here at home equities have opened underwater. A record week in Treasury auctions resumes with $37 billion of three-year note sales. Bernie Madoff bookshelf registrations are a booming business -- two tomes are published on the Ponzi schemer today, within hours of an expected guilty plea from his former CFO on fraud charges.

What will happen: In economics, at 8:30 AM Eastern second quarter productivity rose a stronger than expected 6.4%, the steepest increase in six years. Unit labor costs fell 5.8% for their fastest decline since 2000. June wholesale inventories are out at 10:00 AM. The FOMC starts its two-day policy meeting on interest rates. And we'll be learning about earnings from Applied Materials (AMAT), Bob Evans Farms (BOBE), Broadridge Financial (BR), Clearwire (CLWR), Cree (CREE), Fossil (FOSL), Warnaco (WRC) and Western Gas Partners (WES).

Happenstance: With the number of nationwide bank failures this year now standing at 71, its getting harder to heist. Hence a robber recently resorting to revisiting the scene of the crime.
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