Stocks Discussed: GLD, NKE, BONT, and WYN...
MCM Trades/Fades
1. sold all my Gold (GLD) this morning, $82.69... with the position up +5.2% for us, Gold has out performed the S&P 500 by a considerable margin since we rang the inflation alarms 6 weeks ago. You'll recall that a retest of the $83 level looked reasonable to me (you'll also recall that i'm rarely capable of holding out for that last bid!). We'll buy it back on down days; US stagflation thesis remains, even though its morphing into consensus at this point.
2. covered all my Bon Ton (BONT) today, $9.49... this remains MCM's top US Retail Bankruptcy candidate, and it looks like sellers are starting to consider the same, finally... short gains are meant to be taken, especially as this stock makes new lows on the last day of 2007. I'm locking down another 23% short gain here. Reshort it on up days.
3. covered all my Wyndham Hotels (WYN) today, $23.31... locking in another gain on the short side into year end selling. This was a great investment on the short side into JP Morgan's upgrade closer to $30, on the notion that Wyndham's time share business was going to be fine. Broadly, understanding that economic cycles are more powerful than myopic management teams will continue to represent a tremendous opportunity for plain vanilla short sellers in 2008.
4. covered all my Nike (NKE) today, $64.18... the stock has corrected since we said short the Street's euphoria, at the 52 week high a few weeks back. A nice 4.2% gain to ring the register on in celebration of a solid 2007 for our MCM Momentum Modelling shorts.
Best of luck and health to you and your families for 2008,
Keith McCullough
_________________________________________________
MCM Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -Nov07' Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -Nov07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
''US$ Bottoming is a Process, not a Point' -November07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08'
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec08' _________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70 , sold 27.65) = +3.9%
HOG (bought 45.10 , sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30 , sold 21.51) = - 3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
COST (bought 69.67, sold 68.74) = -1.3%
RSX (bought 49.32, sold 51.36) = +4.0%
HOG (bought 48.20, sold 46.55 ) = -3.4%
KGC (bought 17.33, sold 17.74) = +2.4%
GLD (bought 78.60, sold 82.69) = +5.2%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74 , cover 25.80 ) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51 , cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48 , cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66 ) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37 ) = +7.2%
BKC (short $28.02, cover 27.70 ) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48 ) = +3.0%
JBX (short 28.49, cover 25.74) = +9.6%
BAGL (short $20.15, cover 16.43) = +18.5%
KSS (short 52.64, cover 45.37) = +13.8%
TLF (short 3.25, cover 3.05) = +6.2%
TGT (short 55.23, cover 49.99) = +9.5%
RIMM (short 103.53, cover 116.98) = - 12.99%
HAS (short 27.15, cover 25.80) = +4.97%
BONT (short 12.26, cover 9.49) = +22.6%
WYN (short 25.01, cover 23.31) = +6.8%
NKE (short 67.01, cover 64.18) = +4.2%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs
Monday, December 31, 2007
Monday, December 24, 2007
MCM Macro Morning 12/24/07... 'Just Stocks for them Stockings'
Stocks Discussed: CAKE, UWN, ERTS, TIP, GPS, DWA, KGC, NKE, BAGL, GE, TLF, TGT, RIMM, and HAS
MCM Trades/Fades
1. bought a starter position in Cheesecake Factory (CAKE) last week, $23.31... 70M shares out, $1.6B mkt cap, ($68M cash, $150M Debt) = $1.7B Enterprise Value = 1x and 8.5x my Revenue and EBITDA estimate for 2008, respectively.
-While the Street attempted to digest what the Federal Trade Commission giving antitrust approval to Pelt'z Trian Star Trust for a transaction with the company might mean, i took out my trusty notebooks and went back to work on this one. The stock has corrected since the Trian announcement, so patience is paying off, and is giving us a solid entry point.
-Recently, I've been very critical of the "Concentrated Activists", and with good reason. There is a laundry list of case studies, but to name a few, the Economic History of 2007 will not look back kindly on what the Karsch Capital's did with CSK Auto (CAO), or Pershing Square's with Borders Group (BGP). They'll have their own chapters, and the titles wont be complimentary. However, in this case, if Trian does with the Cheesecake asset what i would do, this is the way "activist" investing should be done. The integrity of the Peltz investment track record stands the test of something that the Bill Ackman's of the world dont have - time.
-Since 2000 (when all i followed were US Retailers & Restaurants as a hedge fund analyst) i've had multiple one on one meetings with CAKE company executives, and have come to appreciate CEO David Overton's bare knuckled approach to running great restaurants. If i'm Trian, thats all i need him to do - operate.
-One of the advantages of being an aggressive short seller, is that you can equip yourself with the mindset that your opponent may have when you get long a stock. And, at this stage of the war, i think the short case on CAKE is as stale as a 5 month old carton of milk. If you disagree with me, get in line - last count has 10.3M shares short, thats 17% of the float.
-So, wheres the rest of the float? Lets start with Overton - one of the greatest restauranteurs this country has ever given birth to; founded the company in 1978; and has one of the highest sales per square foot in all of US Consumer based consumption assets - Overton has > 5% of the CAKE outstanding shares. Trian is at 14%, Ron Baron 11%, Goldman 7%, and T Rowe at 7%. A casual observer of this story might ask, what about Robert Olstein's position? He's at, 2% but very vocal as of late with his call to arms that Overton "step down". Olstein's comments this week can assure you that he is in no way shape or form driving this investment story from here. He seems bitter about how the stock has performed in his portfolio, and thats fair enough. My sense is that Peltz's thesis, and cost basis, with this CAKE investment are much more aligned with mine.
-Fundamentally, (away from taking almost everything Olstein said in his letter, and doing the opposite) what i like most here is Overton's proactive decision to cut capex in 2008, and put himself in a free cash flow positive position for the 1st time since he had to manage his business that way in 2002 (yes, your cycle analyst alarm bells should be ringing... the last time the economic cycle moved against him, this capitalist hunkered down and did what great operators do, and generated positive free cash flow from 2000 until 2002). Even if Overton only half listens to Peltz, i have him generating well over $35M in free cash in 2008.
-Technically, CAKE is putting in what McDonald's did when i bought it in 2003 - a triple bottom. Opportunities to own American brands like these are very hard to find. Closing prices on August 7th, November 2nd, and December 17th of 2007 all bottomed between the prices of $21.65 and $21.69. I dont think there is any irony in the linearity of these prices. That looks to be where someone with real capital, and real conviction, drew a line in the sand.
2. bought another 1/3 of Nevada Gold Casino (UWN), $1.31... MCM Value thesis remains; 12.9M shares x $1.31 = $16.9M mkt cap + proforma debt $16M = EV of $33M versus a book value of $49M = 0.67x Book.
3. bought another 1/3 Electronic Arts (ERTS), $58.20; stock was weak on Fridays open... MCM Momentum long thesis remains into holiday selling results; channel check sales indications remains strong, and Activision put up great #'s this week as well.
4. re-purchased another 1/3 Treasury Inflation Protecteds (TIP) $105.10, on the close friday... MCM inflation theme remains; here's your low beta way to own it.
5. sold 1/3 of our max long position (taking it from 9% to 6%) in The Gap (GPS), $21.77 into Friday's strength... long thesis remains; buy low, sell high.
6. sold 1/3 of our max long position in Dreamworks (DWA), on fridays closing strength, $25.30... stock had a phenomenal week moving +9% higher out of management announcing $150M repo program on December 17th. One of the best analysts in the league, Anthony Noto @ Goldman, made positive comments, helping our cause.
7. sold all the Kinross Gold (KGC) into a meltup on friday, $17.74... stock had a bang up day, squeezing the shorts, closing +9% ; MCM Trend remains bullish on Gold, and we're still expressing that via our long Gold ETF (GLD) position; will repurchase the KGC on down days.
8. shorted Nike (NKE) into the strength associated with their earnings report, $67.01... MCM Momentum Modelling short
-498M shares, $33B mkt cap, $30.8 Enterprise Value (phenomenal balance sheet), but at 12.5x LTM EBITDA is grossly overvalued for a business that has risk factors that are cyclical and mounting
-Its been a 5 great years for Bob Drbul (Lehman's analyst), Brian McGough (Morgan Stanley), and i riding this rocket; standing up against the negative views of Jeff Edelman (UBS) and John Shanley (Susquehanna analyst) at the lows, buying all the Nike we could in 2002, had a great deal to do with us being considered "smart" in this business (thats cyclical too by the way!)... Now there are 17 "BUY"'s on the stock (including Edelman)
-The best MCM Momentum Modelling shorts, are those models that i understood best by virtue of being long them - this one looks pretty straightforward to me, but looks far from it to the likes of Omar Saad (CSFB's analyst) who is hammering back the trailing results cool aid saying "Nike's chart increasingly resembles those of the major global consumer staple companies such as MCD, PG, and PEP"... Omar wasnt a lead analyst during the last economic downturn, so his "chart" probably doesnt go back to the 2000-2002 period, when MCD went to $13; PG was cut in half, and PEP dropped 30% from May to September 2002...
-short interest is only 2% of the float, and Mutual Funds will turn into net sellers, quickly, in 2008, if my #'s are right.
9. re-shorted another 1/3 of the Einstein Noah (BAGL) into someone bidding it higher on friday, $17.80... this is the beauty of short selling; you always get a chance to take turns on the best rides, multiple times - thesis remains.
10. re-shorted General Electric (GE), $37.51 on into Fridays market strength... same thesis, and our 2nd turn riding this slide, after covering it at $36.48 last time.
11. covered my Tandy Leather (TLF), $3.05, on friday, for another gain... thats our 2nd time in this one; short gains are meant to be booked.
12. covered my Target (TGT), $49.99, on friday... i was using a $50 top as a limit, and the fine folks at E-Trade cashed in my gift certificate from Mr Ackman, for Christmas. What a great guy! Thats another locked in +9.5% short term capital gain from where we had the sobriety to move and re-short it to a max short position again. Ho ho ho!
13. covered my Research in Motion (RIMM) on friday, $116.98... when the facts change, i do. I was looking for them to show a deceleration in revenues, and that clearly didnt happen. I was wrong. This isnt my 1st rodeo, and certainly not my 1st trading mistake - but i have learned the hard way that letting these losers ride, tend to end up in bigger losses. Out of sight, out of mind now.
14. covered my Hasbro (HAS), $25.80 ... after RIMM, i needed a confidence builder! so i booked this gain.
Merry Christmas to you, and yours
Keith McCullough
____________________________________________________________
MCM Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07' Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -Nov07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07
''US$ Bottoming is a Process, not a Point' -November07' '
YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08 '
Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08' '
Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec08' _________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70, sold 27.65) = +3.9%
HOG (bought 45.10 , sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30 , sold 21.51) = -3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
COST (bought 69.67, sold 68.74) = -1.3%
RSX (bought 49.32, sold 51.36) = +4.0%
HOG (bought 48.20, sold 46.55) = -3.4%
KGC (bought 17.33, sold 17.74) = +2.4%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74 , cover 25.80 ) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51 , cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48 , cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66 ) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37 ) = +7.2%
BKC (short $28.02, cover 27.70 ) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48 ) = +3.0%
JBX (short 28.49, cover 25.74) = +9.6%
BAGL (short $20.15, cover 16.43) = +18.5%
KSS (short 52.64, cover 45.37) = +13.8%
TLF (short 3.25, cover 3.05) = +6.2%
TGT (short 55.23, cover 49.99) = +9.5%
RIMM (short 103.53, cover 116.98) = -12.99%
HAS (short 27.15, cover 25.80) = +4.97%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
MCM Trades/Fades
1. bought a starter position in Cheesecake Factory (CAKE) last week, $23.31... 70M shares out, $1.6B mkt cap, ($68M cash, $150M Debt) = $1.7B Enterprise Value = 1x and 8.5x my Revenue and EBITDA estimate for 2008, respectively.
-While the Street attempted to digest what the Federal Trade Commission giving antitrust approval to Pelt'z Trian Star Trust for a transaction with the company might mean, i took out my trusty notebooks and went back to work on this one. The stock has corrected since the Trian announcement, so patience is paying off, and is giving us a solid entry point.
-Recently, I've been very critical of the "Concentrated Activists", and with good reason. There is a laundry list of case studies, but to name a few, the Economic History of 2007 will not look back kindly on what the Karsch Capital's did with CSK Auto (CAO), or Pershing Square's with Borders Group (BGP). They'll have their own chapters, and the titles wont be complimentary. However, in this case, if Trian does with the Cheesecake asset what i would do, this is the way "activist" investing should be done. The integrity of the Peltz investment track record stands the test of something that the Bill Ackman's of the world dont have - time.
-Since 2000 (when all i followed were US Retailers & Restaurants as a hedge fund analyst) i've had multiple one on one meetings with CAKE company executives, and have come to appreciate CEO David Overton's bare knuckled approach to running great restaurants. If i'm Trian, thats all i need him to do - operate.
-One of the advantages of being an aggressive short seller, is that you can equip yourself with the mindset that your opponent may have when you get long a stock. And, at this stage of the war, i think the short case on CAKE is as stale as a 5 month old carton of milk. If you disagree with me, get in line - last count has 10.3M shares short, thats 17% of the float.
-So, wheres the rest of the float? Lets start with Overton - one of the greatest restauranteurs this country has ever given birth to; founded the company in 1978; and has one of the highest sales per square foot in all of US Consumer based consumption assets - Overton has > 5% of the CAKE outstanding shares. Trian is at 14%, Ron Baron 11%, Goldman 7%, and T Rowe at 7%. A casual observer of this story might ask, what about Robert Olstein's position? He's at, 2% but very vocal as of late with his call to arms that Overton "step down". Olstein's comments this week can assure you that he is in no way shape or form driving this investment story from here. He seems bitter about how the stock has performed in his portfolio, and thats fair enough. My sense is that Peltz's thesis, and cost basis, with this CAKE investment are much more aligned with mine.
-Fundamentally, (away from taking almost everything Olstein said in his letter, and doing the opposite) what i like most here is Overton's proactive decision to cut capex in 2008, and put himself in a free cash flow positive position for the 1st time since he had to manage his business that way in 2002 (yes, your cycle analyst alarm bells should be ringing... the last time the economic cycle moved against him, this capitalist hunkered down and did what great operators do, and generated positive free cash flow from 2000 until 2002). Even if Overton only half listens to Peltz, i have him generating well over $35M in free cash in 2008.
-Technically, CAKE is putting in what McDonald's did when i bought it in 2003 - a triple bottom. Opportunities to own American brands like these are very hard to find. Closing prices on August 7th, November 2nd, and December 17th of 2007 all bottomed between the prices of $21.65 and $21.69. I dont think there is any irony in the linearity of these prices. That looks to be where someone with real capital, and real conviction, drew a line in the sand.
2. bought another 1/3 of Nevada Gold Casino (UWN), $1.31... MCM Value thesis remains; 12.9M shares x $1.31 = $16.9M mkt cap + proforma debt $16M = EV of $33M versus a book value of $49M = 0.67x Book.
3. bought another 1/3 Electronic Arts (ERTS), $58.20; stock was weak on Fridays open... MCM Momentum long thesis remains into holiday selling results; channel check sales indications remains strong, and Activision put up great #'s this week as well.
4. re-purchased another 1/3 Treasury Inflation Protecteds (TIP) $105.10, on the close friday... MCM inflation theme remains; here's your low beta way to own it.
5. sold 1/3 of our max long position (taking it from 9% to 6%) in The Gap (GPS), $21.77 into Friday's strength... long thesis remains; buy low, sell high.
6. sold 1/3 of our max long position in Dreamworks (DWA), on fridays closing strength, $25.30... stock had a phenomenal week moving +9% higher out of management announcing $150M repo program on December 17th. One of the best analysts in the league, Anthony Noto @ Goldman, made positive comments, helping our cause.
7. sold all the Kinross Gold (KGC) into a meltup on friday, $17.74... stock had a bang up day, squeezing the shorts, closing +9% ; MCM Trend remains bullish on Gold, and we're still expressing that via our long Gold ETF (GLD) position; will repurchase the KGC on down days.
8. shorted Nike (NKE) into the strength associated with their earnings report, $67.01... MCM Momentum Modelling short
-498M shares, $33B mkt cap, $30.8 Enterprise Value (phenomenal balance sheet), but at 12.5x LTM EBITDA is grossly overvalued for a business that has risk factors that are cyclical and mounting
-Its been a 5 great years for Bob Drbul (Lehman's analyst), Brian McGough (Morgan Stanley), and i riding this rocket; standing up against the negative views of Jeff Edelman (UBS) and John Shanley (Susquehanna analyst) at the lows, buying all the Nike we could in 2002, had a great deal to do with us being considered "smart" in this business (thats cyclical too by the way!)... Now there are 17 "BUY"'s on the stock (including Edelman)
-The best MCM Momentum Modelling shorts, are those models that i understood best by virtue of being long them - this one looks pretty straightforward to me, but looks far from it to the likes of Omar Saad (CSFB's analyst) who is hammering back the trailing results cool aid saying "Nike's chart increasingly resembles those of the major global consumer staple companies such as MCD, PG, and PEP"... Omar wasnt a lead analyst during the last economic downturn, so his "chart" probably doesnt go back to the 2000-2002 period, when MCD went to $13; PG was cut in half, and PEP dropped 30% from May to September 2002...
-short interest is only 2% of the float, and Mutual Funds will turn into net sellers, quickly, in 2008, if my #'s are right.
9. re-shorted another 1/3 of the Einstein Noah (BAGL) into someone bidding it higher on friday, $17.80... this is the beauty of short selling; you always get a chance to take turns on the best rides, multiple times - thesis remains.
10. re-shorted General Electric (GE), $37.51 on into Fridays market strength... same thesis, and our 2nd turn riding this slide, after covering it at $36.48 last time.
11. covered my Tandy Leather (TLF), $3.05, on friday, for another gain... thats our 2nd time in this one; short gains are meant to be booked.
12. covered my Target (TGT), $49.99, on friday... i was using a $50 top as a limit, and the fine folks at E-Trade cashed in my gift certificate from Mr Ackman, for Christmas. What a great guy! Thats another locked in +9.5% short term capital gain from where we had the sobriety to move and re-short it to a max short position again. Ho ho ho!
13. covered my Research in Motion (RIMM) on friday, $116.98... when the facts change, i do. I was looking for them to show a deceleration in revenues, and that clearly didnt happen. I was wrong. This isnt my 1st rodeo, and certainly not my 1st trading mistake - but i have learned the hard way that letting these losers ride, tend to end up in bigger losses. Out of sight, out of mind now.
14. covered my Hasbro (HAS), $25.80 ... after RIMM, i needed a confidence builder! so i booked this gain.
Merry Christmas to you, and yours
Keith McCullough
____________________________________________________________
MCM Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07' Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -Nov07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07
''US$ Bottoming is a Process, not a Point' -November07' '
YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08 '
Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08' '
Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec08' _________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70, sold 27.65) = +3.9%
HOG (bought 45.10 , sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30 , sold 21.51) = -3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
COST (bought 69.67, sold 68.74) = -1.3%
RSX (bought 49.32, sold 51.36) = +4.0%
HOG (bought 48.20, sold 46.55) = -3.4%
KGC (bought 17.33, sold 17.74) = +2.4%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74 , cover 25.80 ) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51 , cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48 , cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66 ) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37 ) = +7.2%
BKC (short $28.02, cover 27.70 ) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48 ) = +3.0%
JBX (short 28.49, cover 25.74) = +9.6%
BAGL (short $20.15, cover 16.43) = +18.5%
KSS (short 52.64, cover 45.37) = +13.8%
TLF (short 3.25, cover 3.05) = +6.2%
TGT (short 55.23, cover 49.99) = +9.5%
RIMM (short 103.53, cover 116.98) = -12.99%
HAS (short 27.15, cover 25.80) = +4.97%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
Sunday, December 23, 2007
No Fed Centrist Bull here...
From Nouriel Roubini's Blog on December 22, 2007:
"Will U.S. regulators learn their lesson and ban these off balance sheet scams or force them to have the same regulatory framework of on balance sheet assets and liabilities? Don’t be sure of it. After allowing for years the most reckless lending practices in mortgage lending to fester without any control only this week the Fed has come up this week with new regulations that look like band aid and will do little to avoid the same kind of deceptive and predatory lending practices that went on for years; and even these mild regulations mean nothing unless regulators change their attitudes compared to the last six years and decide to put some resources to enforce them.
Expect similar kind of fudge with respect to the SIVs: instead of treating them like on-balance sheet items there will be the same flawed Basel 2 approach of using internal risk models, credit rating agencies ratings and some band aid capital charges for commitments of liquidity lines to provide flawed “principles-based” rather than more effective “rules-based” regulation and supervision of a financial system that has now gone into the beserk law of the jungle when it comes to reckless and unregulated financial innovation"
"Will U.S. regulators learn their lesson and ban these off balance sheet scams or force them to have the same regulatory framework of on balance sheet assets and liabilities? Don’t be sure of it. After allowing for years the most reckless lending practices in mortgage lending to fester without any control only this week the Fed has come up this week with new regulations that look like band aid and will do little to avoid the same kind of deceptive and predatory lending practices that went on for years; and even these mild regulations mean nothing unless regulators change their attitudes compared to the last six years and decide to put some resources to enforce them.
Expect similar kind of fudge with respect to the SIVs: instead of treating them like on-balance sheet items there will be the same flawed Basel 2 approach of using internal risk models, credit rating agencies ratings and some band aid capital charges for commitments of liquidity lines to provide flawed “principles-based” rather than more effective “rules-based” regulation and supervision of a financial system that has now gone into the beserk law of the jungle when it comes to reckless and unregulated financial innovation"
South Africa's Zuma to look into inflation targeting...
JOHANNESBURG (Reuters) - Jacob Zuma, the newly elected leader of South Africa's ruling African National Congress (ANC) said on Sunday that he would look at inflation targeting, a key monetary policy tool used by the Central Bank to reign in inflation.
South Africa adopted the policy in 2000 as a framework through which the central bank estimates, and makes public, a "target" inflation rate then aims to steer actual inflation towards the target by increasing or decreasing rates.
"Clearly, our main method of inflation targeting, which is hiking the interest rate, has resulted in complaints from both the top end of the financial spectrum as well as the bottom end," The Sunday Independent newspaper reported Zuma saying.
"So it stands to reason that there's some kind of "problem" there. And though I am not going to pretend that I have delved into the issue properly, it is something that I am going to get to," Zuma said.
South Africa's central bank has raised repo rates by a total of 400 basis points since June last year to tame rising inflation pressures.
Critics say the main drivers of accelerating inflation are food and fuel costs largely outside the control of monetary policy.
South Africa adopted the policy in 2000 as a framework through which the central bank estimates, and makes public, a "target" inflation rate then aims to steer actual inflation towards the target by increasing or decreasing rates.
"Clearly, our main method of inflation targeting, which is hiking the interest rate, has resulted in complaints from both the top end of the financial spectrum as well as the bottom end," The Sunday Independent newspaper reported Zuma saying.
"So it stands to reason that there's some kind of "problem" there. And though I am not going to pretend that I have delved into the issue properly, it is something that I am going to get to," Zuma said.
South Africa's central bank has raised repo rates by a total of 400 basis points since June last year to tame rising inflation pressures.
Critics say the main drivers of accelerating inflation are food and fuel costs largely outside the control of monetary policy.
Saturday, December 22, 2007
Positive Demographic trend in the US continues to shift...
U.S. Fertility Rate Hits 35-Year High, Stabilizing Population
By Rob SteinWashington Post Staff WriterFriday, December 21, 2007;A11
For the first time in 35 years, the U.S. fertility rate has climbed high enough to sustain a stable population, solidifying the nation's unique status among industrialized countries.
The overall fertility rate increased 2 percent between 2005 and 2006, nudging the average number of babies being born to each woman to 2.1, according to the latest federal statistics. That marks the first time since 1971 that the rate has reached a crucial benchmark of population growth: the ability of each generation to replace itself.
"It's been quite a long time since we've had a rate this high," said Stephanie J. Ventura of the National Center for Health Statistics. "It's a milestone."
While the rising fertility rate was unwelcome news to some environmentalists, the "replacement rate" is generally considered desirable by demographers and sociologists because it means a country is producing enough young people to replace and support aging workers without population growth being so high it taxes national resources.
"This is a noteworthy event," said John Bongaarts of the Population Council, a New York-based think tank. "This is a sign of demographic health. Many countries would like to be at this level."
Europe, Japan and other industrialized countries have long had fertility rates far below the replacement level, creating the prospect of labor shortages and loss of cultural identity as the proportion of native-born residents shrinks in relation to immigrant populations. In contrast, many developing nations' birthrates far exceed the replacement rate, fueling poverty and social unrest.
"Over the long term you can't have significant continued growth or continued decline," said S. Philip Morgan, a Duke University sociologist. "Neither one is sustainable."
The reasons for the unusual U.S. fertility rate are the focus of intense interest. Experts can only speculate, but they cite a complex mix of factors, including lower levels of birth control use than in other developed countries, widely held religious values that encourage childbearing, social conditions that make it easier for women to work and have families, and a growing Hispanic population.
"It's not clear which of these factors is most important," Bongaarts said.
The nation's total fertility rate hit a high of nearly 3.8 in the United States in 1957 during the postwar Baby Boom. But it fell sharply through the 1960s and 1970s with the introduction of the birth control pill and other trends, including women delaying childbearing to attend college and pursue a career. The rate dipped below replacement level in 1972 and hit a low of 1.7 in 1976, but it started rising again in the late 1970s. It climbed steadily through the 1980s, hovering close to but never hitting the replacement rate throughout the '90s. The population rose steadily nevertheless, however, because, in part, of immigration.
The fertility rate finally surpassed the replacement threshold again in 2006, according to a preliminary analysis of birth data released by the government this month. When the report was published, attention focused on a jump in the teen birthrate for the first time in 14 years, but the statistics show that was part of an increase in birthrates across almost all ages.
By Rob SteinWashington Post Staff WriterFriday, December 21, 2007;A11
For the first time in 35 years, the U.S. fertility rate has climbed high enough to sustain a stable population, solidifying the nation's unique status among industrialized countries.
The overall fertility rate increased 2 percent between 2005 and 2006, nudging the average number of babies being born to each woman to 2.1, according to the latest federal statistics. That marks the first time since 1971 that the rate has reached a crucial benchmark of population growth: the ability of each generation to replace itself.
"It's been quite a long time since we've had a rate this high," said Stephanie J. Ventura of the National Center for Health Statistics. "It's a milestone."
While the rising fertility rate was unwelcome news to some environmentalists, the "replacement rate" is generally considered desirable by demographers and sociologists because it means a country is producing enough young people to replace and support aging workers without population growth being so high it taxes national resources.
"This is a noteworthy event," said John Bongaarts of the Population Council, a New York-based think tank. "This is a sign of demographic health. Many countries would like to be at this level."
Europe, Japan and other industrialized countries have long had fertility rates far below the replacement level, creating the prospect of labor shortages and loss of cultural identity as the proportion of native-born residents shrinks in relation to immigrant populations. In contrast, many developing nations' birthrates far exceed the replacement rate, fueling poverty and social unrest.
"Over the long term you can't have significant continued growth or continued decline," said S. Philip Morgan, a Duke University sociologist. "Neither one is sustainable."
The reasons for the unusual U.S. fertility rate are the focus of intense interest. Experts can only speculate, but they cite a complex mix of factors, including lower levels of birth control use than in other developed countries, widely held religious values that encourage childbearing, social conditions that make it easier for women to work and have families, and a growing Hispanic population.
"It's not clear which of these factors is most important," Bongaarts said.
The nation's total fertility rate hit a high of nearly 3.8 in the United States in 1957 during the postwar Baby Boom. But it fell sharply through the 1960s and 1970s with the introduction of the birth control pill and other trends, including women delaying childbearing to attend college and pursue a career. The rate dipped below replacement level in 1972 and hit a low of 1.7 in 1976, but it started rising again in the late 1970s. It climbed steadily through the 1980s, hovering close to but never hitting the replacement rate throughout the '90s. The population rose steadily nevertheless, however, because, in part, of immigration.
The fertility rate finally surpassed the replacement threshold again in 2006, according to a preliminary analysis of birth data released by the government this month. When the report was published, attention focused on a jump in the teen birthrate for the first time in 14 years, but the statistics show that was part of an increase in birthrates across almost all ages.
Friday, December 21, 2007
Negative read on the Muni market, from one of the brightest in the business...
"basically, 50% of muni market is wrapped by bonds insurers such as MBIA"....
"All of the monolines have higher probability of going belly-up due to subprime exposure. If the monolies go down, you have a muni market that is rated AAA and gets decent, low funding levels due to the credit rating, which suddenly becomes rated much lower..."...
"In other words, those bond spreads widen, a lot, and municipalities can barely fund themselves...."
"The important part is that this is not just a small part of the munimarket...it's >50% of it..."
-The Bond Guy
"All of the monolines have higher probability of going belly-up due to subprime exposure. If the monolies go down, you have a muni market that is rated AAA and gets decent, low funding levels due to the credit rating, which suddenly becomes rated much lower..."...
"In other words, those bond spreads widen, a lot, and municipalities can barely fund themselves...."
"The important part is that this is not just a small part of the munimarket...it's >50% of it..."
-The Bond Guy
Russian inflation rips higher...
Russia's November inflation +11.5% year/year; a 2 year high... it is indeeed "Global This Time" folks = hawkish
US inflation data continues to rise...
PCE Deflator for November came in at +3.6% year/year, and this is well above Bernanke's targeted range = hawkish; keeps the Fed in a box
French inflation continues to rise...
France's PPI for November came in a +4.2% year/year vs. prior +3.3% = hawkish; keeps ECB in a box
German inflation continues to rise...
Germanys Import Price Index for November accelerated sequentially again to +3.5% year/year vs prior +2.3% = hawkish; keeps ECB in a box
Thursday, December 20, 2007
MCM Macro Morning 12/20/07... 'Jefferson vs. China Inc.'
There's an interesting article in the Wall Street Journal this morning, quantifying the "Chinese Investment Spree" of foreign assets, and i cant help but wonder how we're going to look back on this chapter of economic history...
Ironically, today is the anniversary of the Louisiana Purchase. Yes, you're going to have to dust off the ole history books to 1803 for this one, but its worth your 20 seconds to remember that this remains one of the greatest "Trades" in economic history. The Spanish sold the bottom, giving it up to France in 1800... then, worried that trade access to the Mississippi River would be blocked, Thomas Jefferson was able to sucker in Napoleon with a submarine bid of only 3 cents per acre..
Now, instead of going back 204 yrs to the Jefferson trade... lets try 204 days or so back to the Blackstone trade... you know i love these mathematically linear ironies!
New York Times: China Says It Made Blackstone Investment to Raise Returns By KEITH BRADSHERHONG KONG, May 21 — From the outside, the Chinese government's $3 billion purchase of a nonvoting stake in the Blackstone Group might look like a prelude to a broader campaign for control of foreign companies. China to Buy a Stake in Blackstone (May 21, 2007) But a Chinese official ruled that out in an interview Monday, saying the purchase was simply a way to raise returns on overseas investments and did not signal any plan to take control of foreign companies.
Retrospectively, after seeing Blackstone trade from $35 at the highs, down to $21 at the lows, (yes thats a 40% drop), its now crystal clear that China was the one who got submarined.
And now ...the Chinese Sovereign funds are cutting separate $5B checks for pieces of Citigroup and Morgan Stanley?
There can be great ironies revealed by economic cycles... particularly this one.
Remember, its "Global This time"...
Good luck out there today,
KM
___________________________________________________________________________________________________________________________________
ASIA - Continues to trend lower. The amber lights we've been flashing re: the "Its Global This Time" narrative, should be front, center, and turning red on your screens .
1. Chinese equities were +2.1% and were the only Asian tape with a bid overnight, but remember, those are locals bidding, not institutions, and at the close there is nothing quite like your local Communist government punching you in the nose with another rate hike. In our view, the positive divergence today will likely become a negative one tomorrow as China raised rates to 7.47%, addressing inflation as enemy #1 (as it has been for every Chinese regime in their economic history).
2. Japan was flat over night with no bid to this market and nothing positive coming out of the 2 days of the BOJ meeting. The Trade Surplus in Japan (close to $800B Yen) was reported down 12% y/y vs. an expectation of it continuing to grow = MCM Trend in Japan remains negative. The long hoped for turnaround is no longer a reasonable near term expectation.
3. South Korea down -86bps and underperformed the region after their elections went through as expected. Some pundits think Mr Lee's leadership is "positive, because he is a businessman"? Ever "do business" with one of the fine folks on the Han River? = MCM Trend remains negative here. Stay short EWY (Korean ETF) - Asia's 3rd largest economy is what you want to be short as Global Industrial Production growth slows in 2008.
4. Thailand -1.7%, Vietnam down another 1.7%, Singapore -36bps = negative leading indicators for Asian Industrial Production growth in 2008
EUROPE - Has a bid this morning, but conviction is nowhere to be found. UK GDP for Q3 reported at +3.3% y/y, which not exactly what we would call emergency rate cut time.
1. FTSE up 30bps, is pleading for a catalyst, but remains technically broken unless it can muster a close above the 6,345 line = MCM Trend remains negative on the UK.
2. Turkey down -69bps, showing a negative divergence vs. the region as it wrestles with being accepted into the European Union. This is this just one more negative leading indicator of what in store for the "Its Global this Time" narrative in 2008 . These tapes used to be shining beacons of growth to come, but seem to signalling a different future in 2008 . . . stay tuned!
3. Poland flat, and continues to diverge negatively on European up and down days = continues to build my conviction in the MCM Theme of 'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
OTHER MCM Geopolitical / Country callouts
1. South African stocks seeing a relief rally, albeit a modest one post the selloff concerns surrounding Mr Zuma's election, trading +69bps = there was a time in this world when these rats could hide, but now we have our accountability mechanism (the internet), flashing like a bright light on them when they are found in the garbage cans: POLOKWANE, South Africa (CNN) -- South Africa's top prosecutor said Thursday he has enough evidence to charge Jacob Zuma, the newly-elected leader of the African National Conference, with corruption, following years of allegations.
2. Canada finally put up its 1st up day in the last 5 trading days, closing up, barely, by +24bps = technical breakdown in the TSX is obvious at this point, and it begs the same question that all of our other negative leading indicators are asking us - that is if you agree with MCM in that stocks are leading indicators . . . is Global Industrial Production growth going to slow in 2008?
3. Mexico down another -62bps, and we continue to see positive P&L with this simpleton position of short EWW = MCM Trend in Mexico remains negative.
4. Brazil up for the 2nd day in a row at +1.1%, providing leadership to the wavering global equity tape = MCM Trend in Brazil is positive . There is a big difference to being levered to Global Basic Food Consumption vs. Industrial Production, real big.
COMMODITIES - Continue to give the "stiff arm" to the Fed Centrists (Kudlow, Laffer, etc) who continue to make reckless and unobjective comments relative to reality, because that is their job. This is classic Taleb theory, which is simply that Wall St Bulls are paid to seek out the data points supporting their bullish stance, and ignore the balance of the facts opposing these stances. He calls this narrative fallacy.
1. CRB Commodity index +90bps yesterday, outperforming the SP500 which was down 7bps = stagflation.
2. Oil led the index higher with a +2.2% move, reminding technicians that no one ever became a billionaire putting capital at risk being purely a "chart guy". (Dennis Gartman is great, just not on the idea of shorting oil with his "head and shoulders formation" call...) = inflationary, and supported by convincing fundamentals in the weak US inventory data yesterday.
3. Gold remains as solid as solid gets at $806 last = inflationary.
4. Wheat strength remains, trading $9.77/bushel, and hopefully hammering home to traders in who keep trying to short wheat in Chicago that rain in Kansas can be trumped by 1.1B Indians who are actively tendering wheat, daily = inflationary .
5. Base Metals having their 2nd up day in a row. Copper leads the way +2% = yes, Larry Kudlow, this is inflationary as well.
RATES/CURRENCIES - 10yr yields approaching the 4% line. That's where the MCM Trade on US Equities gets more interesting on the long side.
1. 2yr 3.15%; 10yr 4.06% = implied US Equity yields starting to look more attractive than Bond Yields ... stay tuned
2. US$ up, again!, at 77.75... one of the guys I recently worked with said "Keith, i think you'll eventually get it right". It's fun when the "eventual" becomes yesterday.
3. Euro making new lows, again!, at 1.43, and the Pound Sterling continues to get pounded, braking the 2.00 line this morning = inflationary for American consumers.
4. Chinese Yuan making new highs, post their rate hike decision. Yuan 7.36 represents a +5.7% gain since where it started 2007 (7.81) = this is a stealth inflationary factor that I don't see many people writing about - particularly for US apparel, which showed a huge +.8% month/month pop within the November CPI report. The days of Kohl's (KSS) selling you a golf shirt for $4.99 are gone, unless they blow up their margin structure.
Private Equity/M&A/Credit/Hedge Funds - Introducing a new MCM Theme this morning: ''Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec08'. If you were naughty this year, well then beware because Santa MCM is analyzing your positions!
_________________________________________________________________________________________________________________________
MCM Trades/Fades
1. WMT - Re-purchased another 1/3 of Wal-Mart (WMT) at $47.94 on market weakness yesterday. We'll pay 8x LTM EBITDA and receive a 1.8% dividend yield (especially when real interest rates are negative!) for the only large cap Retailer who understand that its time to pair back domestic capex spending ahead of the pending US Retail Bankruptcy cycle. WMT has already guided for down margins in 2008 and "the question is" for the other management teams out there, why haven't you? The best part about having an opportunity to buy our WMT back (last time we sold it close to $50), is that it helps us remain aggressive with our Target (TGT) short position into year end (our Virtual Hedge fund hedges!). Ackman is in trouble being levered long (we understand that his "TGT Fund" is levered 3:1). TGT came out today saying that their "credit card review is taking longer than expected". Since that catalyst is gone, you can you can bet that no hedge fund on the current holders list has negative momentum, earnings risk and exposure to US Consumer on their year end wish list. As a result, we believe that TGT will be better to sell at least through year end.
2. RSX - Sold our trading positon in the Russian ETF (RSX) at $51.36. We booked a 4% gain into market strength after Putin was named Time Magazine's Man of the Year! http://www.time.com/time/specials/2007/personoftheyear/
3. HOG - Sold the 1/3 of the Harley (HOG) position that we bought back at $46.55. This was an exposure move and we still like this one under $45.
4. TIP - Sold 1/3 of our Treasury Inflation Protected (TIP) at $105.97. The Street's inflation expectations are now more aligned with our view, so it is time to sell into those expectations.
5. KSS - Covered all of our Kohls (KSS) at $45.37. The stock had another down -4% day yesterday. We booked another +13.8% win for MCM on the short side. The short high, cover low strategy continues to work.
6. KMB - Shorted Kimberly Clark (KMB) yesterday at $68.82. With a $29B market cap, a $34B enterprise value and trading at 10x LTM EBITDA, this stock is expensive for a company that has set themselves up to miss in 2008. In our view, the best case is that sales growth is cut in half in 08' to 3-4% y/y vs. the +8% expected for 2007 and decelerating top line growth is a consistent MCM short theme. The stock put in an all time high in Q2 of 2007, as sales peaked and management continued to deliver on what has been a solid turnaround, but now they have to compare against these strong results in a tougher consumer environment with higher input costs. The consensus estimates for EBIT and EPS for 2008 imply significant margin expansion as management hopes for commodity relief. Hope is not a business model.
7. CAT - Shorted some Caterpillar (CAT) into a strong market open yesterday at $71.49. This is a big, sloppy and over owned situation with only 1.6% of the float held short. Big mutual fund managers can't afford to lose the relative performance game in 08' owning this one. With a $45B market cap and $72B enterprise value, the substantial debt balance will give "the Big Cat" little room to move as the economic cycle shifts under his feet. That said, it is cheap if you believe the Street's 08' #s. We don't believe those numbers predominantly because we have a much more negative view than most on Global Industrial Production growth slowing in 08'. In Q3, over 58% of CAT's sales came from the rest of the world and as the "it's global this time" narrative morphs from an asset into a liability, that exposure with hurt.
8. EWW - Re-shorted Mexico ETF (EWW) at $56.97 yesterday on a squeezed up open. Short thesis is simple - Mexico has the highest correlations to U.S. GDP growth slowing and this populist meca is the best fundamental country ETF short I can find.
9. SHLD - Re-shorted Sears Holdings (SHLD) at $106.09 into a strong open. The best part about this ride on the short side is that we get to take it over, and over, and over again.
10. BAGL - Re-shorted Einstein Noah Bagels (BAGL) at $16.84 on the bounce. Evidently, even rock hard stale bagels bounce on Lexington Avenue in December. We are grateful for another entry point. With wheat making new highs, the short thesis not only remains, it gets more better.
11. WYN - Re-shorted Wyndham Hotels (WYN) yesterday at $25.01. We had a $25 low and E-trade kindly filled us. We are happy to regain short exposure to a company that has no idea what the time share business is going to do to them in 2008.
____________________________________________________________________________________________________________________________________
MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ Bottoming is a Process, not a Point' -November07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
'Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec08'
____________________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70, sold 27.65) = +3.9%
HOG (bought 45.10 , sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30 , sold 21.51) = -3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
COST (bought 69.67, sold 68.74) = -1.3%
RSX (bought 49.32, sold 51.36) = +4.0%
HOG ($48.20, sold 46.55) = -3.4%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74, cover 25.80 ) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51 , cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48, cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37 ) = +7.2%
BKC (short $28.02, cover 27.70 ) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48) = +3.0%
JBX (short 28.49, cover 25.74) = +9.6%
BAGL (short $20.15, cover 16.43) = +18.5%
KSS (short 52.64, cover 45.37) = +13.8%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
--
Ironically, today is the anniversary of the Louisiana Purchase. Yes, you're going to have to dust off the ole history books to 1803 for this one, but its worth your 20 seconds to remember that this remains one of the greatest "Trades" in economic history. The Spanish sold the bottom, giving it up to France in 1800... then, worried that trade access to the Mississippi River would be blocked, Thomas Jefferson was able to sucker in Napoleon with a submarine bid of only 3 cents per acre..
Now, instead of going back 204 yrs to the Jefferson trade... lets try 204 days or so back to the Blackstone trade... you know i love these mathematically linear ironies!
New York Times: China Says It Made Blackstone Investment to Raise Returns By KEITH BRADSHERHONG KONG, May 21 — From the outside, the Chinese government's $3 billion purchase of a nonvoting stake in the Blackstone Group might look like a prelude to a broader campaign for control of foreign companies. China to Buy a Stake in Blackstone (May 21, 2007) But a Chinese official ruled that out in an interview Monday, saying the purchase was simply a way to raise returns on overseas investments and did not signal any plan to take control of foreign companies.
Retrospectively, after seeing Blackstone trade from $35 at the highs, down to $21 at the lows, (yes thats a 40% drop), its now crystal clear that China was the one who got submarined.
And now ...the Chinese Sovereign funds are cutting separate $5B checks for pieces of Citigroup and Morgan Stanley?
There can be great ironies revealed by economic cycles... particularly this one.
Remember, its "Global This time"...
Good luck out there today,
KM
___________________________________________________________________________________________________________________________________
ASIA - Continues to trend lower. The amber lights we've been flashing re: the "Its Global This Time" narrative, should be front, center, and turning red on your screens .
1. Chinese equities were +2.1% and were the only Asian tape with a bid overnight, but remember, those are locals bidding, not institutions, and at the close there is nothing quite like your local Communist government punching you in the nose with another rate hike. In our view, the positive divergence today will likely become a negative one tomorrow as China raised rates to 7.47%, addressing inflation as enemy #1 (as it has been for every Chinese regime in their economic history).
2. Japan was flat over night with no bid to this market and nothing positive coming out of the 2 days of the BOJ meeting. The Trade Surplus in Japan (close to $800B Yen) was reported down 12% y/y vs. an expectation of it continuing to grow = MCM Trend in Japan remains negative. The long hoped for turnaround is no longer a reasonable near term expectation.
3. South Korea down -86bps and underperformed the region after their elections went through as expected. Some pundits think Mr Lee's leadership is "positive, because he is a businessman"? Ever "do business" with one of the fine folks on the Han River? = MCM Trend remains negative here. Stay short EWY (Korean ETF) - Asia's 3rd largest economy is what you want to be short as Global Industrial Production growth slows in 2008.
4. Thailand -1.7%, Vietnam down another 1.7%, Singapore -36bps = negative leading indicators for Asian Industrial Production growth in 2008
EUROPE - Has a bid this morning, but conviction is nowhere to be found. UK GDP for Q3 reported at +3.3% y/y, which not exactly what we would call emergency rate cut time.
1. FTSE up 30bps, is pleading for a catalyst, but remains technically broken unless it can muster a close above the 6,345 line = MCM Trend remains negative on the UK.
2. Turkey down -69bps, showing a negative divergence vs. the region as it wrestles with being accepted into the European Union. This is this just one more negative leading indicator of what in store for the "Its Global this Time" narrative in 2008 . These tapes used to be shining beacons of growth to come, but seem to signalling a different future in 2008 . . . stay tuned!
3. Poland flat, and continues to diverge negatively on European up and down days = continues to build my conviction in the MCM Theme of 'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
OTHER MCM Geopolitical / Country callouts
1. South African stocks seeing a relief rally, albeit a modest one post the selloff concerns surrounding Mr Zuma's election, trading +69bps = there was a time in this world when these rats could hide, but now we have our accountability mechanism (the internet), flashing like a bright light on them when they are found in the garbage cans: POLOKWANE, South Africa (CNN) -- South Africa's top prosecutor said Thursday he has enough evidence to charge Jacob Zuma, the newly-elected leader of the African National Conference, with corruption, following years of allegations.
2. Canada finally put up its 1st up day in the last 5 trading days, closing up, barely, by +24bps = technical breakdown in the TSX is obvious at this point, and it begs the same question that all of our other negative leading indicators are asking us - that is if you agree with MCM in that stocks are leading indicators . . . is Global Industrial Production growth going to slow in 2008?
3. Mexico down another -62bps, and we continue to see positive P&L with this simpleton position of short EWW = MCM Trend in Mexico remains negative.
4. Brazil up for the 2nd day in a row at +1.1%, providing leadership to the wavering global equity tape = MCM Trend in Brazil is positive . There is a big difference to being levered to Global Basic Food Consumption vs. Industrial Production, real big.
COMMODITIES - Continue to give the "stiff arm" to the Fed Centrists (Kudlow, Laffer, etc) who continue to make reckless and unobjective comments relative to reality, because that is their job. This is classic Taleb theory, which is simply that Wall St Bulls are paid to seek out the data points supporting their bullish stance, and ignore the balance of the facts opposing these stances. He calls this narrative fallacy.
1. CRB Commodity index +90bps yesterday, outperforming the SP500 which was down 7bps = stagflation.
2. Oil led the index higher with a +2.2% move, reminding technicians that no one ever became a billionaire putting capital at risk being purely a "chart guy". (Dennis Gartman is great, just not on the idea of shorting oil with his "head and shoulders formation" call...) = inflationary, and supported by convincing fundamentals in the weak US inventory data yesterday.
3. Gold remains as solid as solid gets at $806 last = inflationary.
4. Wheat strength remains, trading $9.77/bushel, and hopefully hammering home to traders in who keep trying to short wheat in Chicago that rain in Kansas can be trumped by 1.1B Indians who are actively tendering wheat, daily = inflationary .
5. Base Metals having their 2nd up day in a row. Copper leads the way +2% = yes, Larry Kudlow, this is inflationary as well.
RATES/CURRENCIES - 10yr yields approaching the 4% line. That's where the MCM Trade on US Equities gets more interesting on the long side.
1. 2yr 3.15%; 10yr 4.06% = implied US Equity yields starting to look more attractive than Bond Yields ... stay tuned
2. US$ up, again!, at 77.75... one of the guys I recently worked with said "Keith, i think you'll eventually get it right". It's fun when the "eventual" becomes yesterday.
3. Euro making new lows, again!, at 1.43, and the Pound Sterling continues to get pounded, braking the 2.00 line this morning = inflationary for American consumers.
4. Chinese Yuan making new highs, post their rate hike decision. Yuan 7.36 represents a +5.7% gain since where it started 2007 (7.81) = this is a stealth inflationary factor that I don't see many people writing about - particularly for US apparel, which showed a huge +.8% month/month pop within the November CPI report. The days of Kohl's (KSS) selling you a golf shirt for $4.99 are gone, unless they blow up their margin structure.
Private Equity/M&A/Credit/Hedge Funds - Introducing a new MCM Theme this morning: ''Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec08'. If you were naughty this year, well then beware because Santa MCM is analyzing your positions!
_________________________________________________________________________________________________________________________
MCM Trades/Fades
1. WMT - Re-purchased another 1/3 of Wal-Mart (WMT) at $47.94 on market weakness yesterday. We'll pay 8x LTM EBITDA and receive a 1.8% dividend yield (especially when real interest rates are negative!) for the only large cap Retailer who understand that its time to pair back domestic capex spending ahead of the pending US Retail Bankruptcy cycle. WMT has already guided for down margins in 2008 and "the question is" for the other management teams out there, why haven't you? The best part about having an opportunity to buy our WMT back (last time we sold it close to $50), is that it helps us remain aggressive with our Target (TGT) short position into year end (our Virtual Hedge fund hedges!). Ackman is in trouble being levered long (we understand that his "TGT Fund" is levered 3:1). TGT came out today saying that their "credit card review is taking longer than expected". Since that catalyst is gone, you can you can bet that no hedge fund on the current holders list has negative momentum, earnings risk and exposure to US Consumer on their year end wish list. As a result, we believe that TGT will be better to sell at least through year end.
2. RSX - Sold our trading positon in the Russian ETF (RSX) at $51.36. We booked a 4% gain into market strength after Putin was named Time Magazine's Man of the Year! http://www.time.com/time/specials/2007/personoftheyear/
3. HOG - Sold the 1/3 of the Harley (HOG) position that we bought back at $46.55. This was an exposure move and we still like this one under $45.
4. TIP - Sold 1/3 of our Treasury Inflation Protected (TIP) at $105.97. The Street's inflation expectations are now more aligned with our view, so it is time to sell into those expectations.
5. KSS - Covered all of our Kohls (KSS) at $45.37. The stock had another down -4% day yesterday. We booked another +13.8% win for MCM on the short side. The short high, cover low strategy continues to work.
6. KMB - Shorted Kimberly Clark (KMB) yesterday at $68.82. With a $29B market cap, a $34B enterprise value and trading at 10x LTM EBITDA, this stock is expensive for a company that has set themselves up to miss in 2008. In our view, the best case is that sales growth is cut in half in 08' to 3-4% y/y vs. the +8% expected for 2007 and decelerating top line growth is a consistent MCM short theme. The stock put in an all time high in Q2 of 2007, as sales peaked and management continued to deliver on what has been a solid turnaround, but now they have to compare against these strong results in a tougher consumer environment with higher input costs. The consensus estimates for EBIT and EPS for 2008 imply significant margin expansion as management hopes for commodity relief. Hope is not a business model.
7. CAT - Shorted some Caterpillar (CAT) into a strong market open yesterday at $71.49. This is a big, sloppy and over owned situation with only 1.6% of the float held short. Big mutual fund managers can't afford to lose the relative performance game in 08' owning this one. With a $45B market cap and $72B enterprise value, the substantial debt balance will give "the Big Cat" little room to move as the economic cycle shifts under his feet. That said, it is cheap if you believe the Street's 08' #s. We don't believe those numbers predominantly because we have a much more negative view than most on Global Industrial Production growth slowing in 08'. In Q3, over 58% of CAT's sales came from the rest of the world and as the "it's global this time" narrative morphs from an asset into a liability, that exposure with hurt.
8. EWW - Re-shorted Mexico ETF (EWW) at $56.97 yesterday on a squeezed up open. Short thesis is simple - Mexico has the highest correlations to U.S. GDP growth slowing and this populist meca is the best fundamental country ETF short I can find.
9. SHLD - Re-shorted Sears Holdings (SHLD) at $106.09 into a strong open. The best part about this ride on the short side is that we get to take it over, and over, and over again.
10. BAGL - Re-shorted Einstein Noah Bagels (BAGL) at $16.84 on the bounce. Evidently, even rock hard stale bagels bounce on Lexington Avenue in December. We are grateful for another entry point. With wheat making new highs, the short thesis not only remains, it gets more better.
11. WYN - Re-shorted Wyndham Hotels (WYN) yesterday at $25.01. We had a $25 low and E-trade kindly filled us. We are happy to regain short exposure to a company that has no idea what the time share business is going to do to them in 2008.
____________________________________________________________________________________________________________________________________
MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ Bottoming is a Process, not a Point' -November07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
'Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec08'
____________________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70, sold 27.65) = +3.9%
HOG (bought 45.10 , sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30 , sold 21.51) = -3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
COST (bought 69.67, sold 68.74) = -1.3%
RSX (bought 49.32, sold 51.36) = +4.0%
HOG ($48.20, sold 46.55) = -3.4%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74, cover 25.80 ) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51 , cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48, cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37 ) = +7.2%
BKC (short $28.02, cover 27.70 ) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48) = +3.0%
JBX (short 28.49, cover 25.74) = +9.6%
BAGL (short $20.15, cover 16.43) = +18.5%
KSS (short 52.64, cover 45.37) = +13.8%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
--
Wednesday, December 19, 2007
MCM Macro Morning 12/19/07... 'The Tide Rolls Out: Revealing the Goldman Levered Long Guys'
I suppose that its only fitting that i was pumping Goldman's tires ahead of their conference call yesterday, only to see their shares technically breakdown and close at new 7 week lows... Good thing i am not long GS! or worse, long that so called "hedge fund" that they call the "Global Alpha"...
Alpha, incidentally, per Wikipedia is a (risk-adjusted measure of the so-called "excess return" on an investment. It is a common measure of assessing an active manager's performance as it is the return in excess of a benchmark index or "risk-free" investment)...
Since this weekend's MCM Strategy note focussed on the efficacy of analyzing economic cycles, is there any irony that Goldman's share price peaked on at $247.92, in sync with the peak of Wall Street's "Its Global This Time" bullish narrative in October? It might be too Ben Stein'esque for one to suggest that its even more ironic that the date on that share price peaking was October 31st, the month end performance reporting date for a lot of hedge funds looking to raise money - so i wont do that!
Goldman's shares are down 18.7% from their cycle peak, and Chinese Shares (Shanghai Composite kind) are down 18.2% from theirs...
I know, thats probably just one of them squirrely ironies, or "statistical aberrations", that some of the "Quants" (like Goldman Alpha) were blaming their August performance problems on ...
There can be great ironies revealed by economic cycles... particularly this one, since its "Global This time"...
Good luck out there today,
KM
___________________________________________________________________________________________________________________________________ ASIA cut and pasted an up day together, but barely... my concerns re 2008 Asian Industrial Production growth remain...
1. China led the way higher w/ the Shanghai Composite closing +2.2% at 4941 = bullish leadership, for a day... one day does not a trend make
2. Honk Kong followed China's lead, but on low volume, and unconvincingly relative to relief rallies we've been used to seeing in 07' = +1.1% day for the Hang Sang to 27,029... MCM Trend in HK moved to neutral...
3. Japan down another -1.2% led declining markets, after the Bank of Japan made explicit statements about lower than expected GDP growth for 2007 and beyond at their two day policy meeting (in English that means no rate cuts) = MCM Trend in Japan remains negative; if you're a PM who's in the "Its Global this time" growth camp, not paying attention to a renewed fundamental and technical breakdown in the Nikkei is going to come back and sting you...
4. Thailand -1.1%, Singapore -36bps = negative divergences vs. Asian Equities, and proxies for an Asian growth slowdown in 08'
EUROPE cant hold any semblance of a positive rally, trading flattish this morning despite up moves in the US and Asia... Fundamentals ruling the day after the ECB's Trichet comments were crystal clear to anyone with a good handle on the English language:
Dec. 19 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said his economy faced a ``more protracted'' period of elevated inflation than previously expected, signaling he's not planning to cut interest rates to ease a credit squeeze. ``The risks to price stability over the medium term are clearly on the upside,'' Trichet told the European Parliament's economic and monetary affairs committee in Brussels today. ``The ECB's Governing Council stands ready to counter upside risks to price stability.''
1. FTSE has London traders all bummed out as it continues to break down technically = MCM Trend in the UK moves to negative; i've been holding off here, partly because i'm Scottish, but mostly because i didnt want to get runnover by a surprise ECB rate cut ... that isnt happening, as of Trichet's teach in this morning
2. Germany down 67bps, showing a negative divergence to European Equities, after they printed the highest PPI (November) in 19mth at +2.5% = stagflation...
3. Czech stocks down -1.5%, Polish stocks down another 46bps = the beacons for the "Its Global This Time" market bulls in Eastern Europe are started to fade; negative tell...
OTHER MCM Geopolitical/Country callouts... enter the African Socialist Left ...
1. South African stocks pummelled for the 2nd day in a row, closing down another 2.7% after Jacob Zuma took 61% of the vote to win leadership of the ANC party; after a decade of rule, Mbeki is out, and the guy who got fired in 05', then charged of rape this year, is plugged in as the Leftist = political destabilization in a country seeing rampant inflation and social unrest is not good... keep your eyes on this canary re my MCM Theme of Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -Nov07'
2. Brazil finally broke the losing streak, closing +2.1% at 61.096 = MCM Trend in Brazil remains positive; from a country perspective its the best way to be long my MCM Theme of 'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
COMMODITIES seeing rotation out of energy and into the Base Metals - for a day... 1. CRB Commodity index down 28bps yesterday to 347... = remains inflationary; ask the Africans who have to buy what the PM in midtown outsources to his assistant
2. Oil down under $90/barrel again, partly because the Kurdish geopolitical alarm bell toned down, but mostly because the technicians are starting to call for the 'Head & Shoulders" formation on the crude chart... there is no scientific method asserting this, but there is certainly an artistically qualitative one that traders on Wall St will consider...
3. Gold looks as solid as it feels (if you bite into it), moving higher yesterday, and now up a healthy +1.6% for the week to date, leading most commodities = inflationary
4. Corn/Wheat/Soy continue to impress despite concerns of pending rain this weekend in Kansas; the Aussi's confirmed their 2008 outlook of weak supply relative to demand (Australia is the world's 5th largest exporter of wheat) = inflationary...
5. Base Metals finally catch a rally off the lows for a +1% ish up move across the group = nothing to get hopped up about; 1 day does not a trend make
RATES/CURRENCIES...
1. 2yr rates 3.14%; 10yr yields down small to 4.09% = yields on 10yr notes looking less appealing vs. US equity yields again...
2. US$ remains pinned at this 77.50 line, deafening the cries of those who were calling for the Euro to replace the US$ as the world's "reserve currency"... isnt it amazing how low levels of conviction people have in anything European? remember when our canoe paddling divorcee Sarkozy was supposed to ride onto the global economic science as the Napoleon of Capitalism? whats he doing now, sunning himself? Legacy Europe remains entrenched in an economic of pending stagflation...
3. Euro 1.44 making a 7 month low vs the US$ = hammers home whatever the point was that i was just trying to make!
Private Equity/M&A/Credit/Hedge Funds ... Litigation and Redemption time...
1. Federal Prosecutors are investigating Bears Stearns Mortgage Backed Securities PM Ralph Cioffi for unloading $2M of his own $, pre losing all his clients $, ahead of his subprime implosion... allegedly of course... but this is just a disaster anyway you want to look at it... Bear was once regarded as one of the finest investment firms in the Financial Industry, and now we're seeing the greed and irresponsibility of a certain few individuals, washout decades of relationship and trust building ... BSC is down 43% year to date, and now there's talk that Jimmy Cayne and his team arent going to pay themselves bonuses this yr ... the curtains are up
2. Goldman Global Alpha Fund news just isn't good - on their conference call yesterday, Goldman's CFO walked through the simple reality that these "quants" he writes paychecks to are glorified levered long only traders (well, he didnt say that specifically - thats my read through)... the Alpha fund was apparently down something on the order of 6% for November, and after what happened to these guys in August (remember, they blew up and called it a statistical event of 'unprecedented standard deviations' vs. what should happen), this makes for clear MCM Trend, thats pointing down... when your investment strategy only makes money in up tapes, you are not what i consider a hedge fund - you are simply one more strategy being revealed as a long biased levered financial product of the bull market's cycle... i've said this on every trading floor of every hedge fund i have worked on - Hedge Funds Hedge!... Goldman Alpha will be seeing serious redemptions, and the risk management leaders of the Mother Ship GS (who i was very complimentary of yesterday), are doing the right thing again in taking down their exposure to this one way investment strategy.. to paraphrase the man, Warren Buffet, 'when the tide rolls out, everyone who is swimming naked gets revealed'... MCM Theme remains 'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08 _________________________________________________________________
MCM Trades/Fades
1. sold my Costco (COST) yesterday ... i bought a trading position ahead of their quarter last week, and dont like how the stock has traded since; the quarter was solid, and no one cares...the way it acts on market up moves also tells me not enough hedge funds are short it either, which is a negative in the balance of return optionality that i look for...
2. sold 1/3 of my Gold (GLD) position yesterday... trending US Dollar strength is becoming a negative headwind for this position, so with GLD having a +1.43% up day for me, i trimmed the profit tree...
3. shorted another 1/3 of South Korea ETF (EWY) yesterday... because it was up big into the close and i wanted to be fully hedged (dollar neutral) in my long Russia (RSX), short Korea (EWY) pair...
4. shorted some American Express (AXP) yesterday, $52.65... from a MCM Momentum modelling perspective, it looks obvious to me that Q1 of AXP's 2007 Fiscal Year was as good as it gets; this is a cyclical business, US credit card statistics are finally showing overdue strain, and i expect them to guide down the Q108' consensus of $.93/share, when they report their upcoming Q4... short interest is very low, at 1.5% of the float, and the stock is clearly breaking down technically
5. covered my Jack in The Box (JBX) yesterday; $25.74... short gains are meant to be taken, especially in MCM shorts where the bulls are exhibiting the most obvious technical fear... this has been a beauty; +9.6% gain booked, despite Wachovia's upgrade last week - we'll reshort higher...
6. covered my Einstein Noah (BAGL) yesterday, $16.43... another large win for MCM here on the short side... it looks like someone is finally paying attention to wheat costs; BAGL traded 3x average daily trade yesterday, closing down 10.4%... fundamental short case remains, but +18.5% gains in an up tape work for me... re-short higher
______________________________________________________________
MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ Bottoming is a Process, not a Point' -November07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
_______________________________________________________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70, sold 27.65) = +3.9%
HOG (bought 45.10, sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30 , sold 21.51) = -3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
COST (bought 69.67, sold 68.74) = -1.3%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74, cover 25.80 ) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51, cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48, cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37) = +7.2%
BKC (short $28.02, cover 27.70 ) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48) = +3.0%
JBX (short 28.49, cover 25.74) = +9.6%
BAGL (short $20.15, cover 16.43) = +18.5%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
Alpha, incidentally, per Wikipedia is a (risk-adjusted measure of the so-called "excess return" on an investment. It is a common measure of assessing an active manager's performance as it is the return in excess of a benchmark index or "risk-free" investment)...
Since this weekend's MCM Strategy note focussed on the efficacy of analyzing economic cycles, is there any irony that Goldman's share price peaked on at $247.92, in sync with the peak of Wall Street's "Its Global This Time" bullish narrative in October? It might be too Ben Stein'esque for one to suggest that its even more ironic that the date on that share price peaking was October 31st, the month end performance reporting date for a lot of hedge funds looking to raise money - so i wont do that!
Goldman's shares are down 18.7% from their cycle peak, and Chinese Shares (Shanghai Composite kind) are down 18.2% from theirs...
I know, thats probably just one of them squirrely ironies, or "statistical aberrations", that some of the "Quants" (like Goldman Alpha) were blaming their August performance problems on ...
There can be great ironies revealed by economic cycles... particularly this one, since its "Global This time"...
Good luck out there today,
KM
___________________________________________________________________________________________________________________________________ ASIA cut and pasted an up day together, but barely... my concerns re 2008 Asian Industrial Production growth remain...
1. China led the way higher w/ the Shanghai Composite closing +2.2% at 4941 = bullish leadership, for a day... one day does not a trend make
2. Honk Kong followed China's lead, but on low volume, and unconvincingly relative to relief rallies we've been used to seeing in 07' = +1.1% day for the Hang Sang to 27,029... MCM Trend in HK moved to neutral...
3. Japan down another -1.2% led declining markets, after the Bank of Japan made explicit statements about lower than expected GDP growth for 2007 and beyond at their two day policy meeting (in English that means no rate cuts) = MCM Trend in Japan remains negative; if you're a PM who's in the "Its Global this time" growth camp, not paying attention to a renewed fundamental and technical breakdown in the Nikkei is going to come back and sting you...
4. Thailand -1.1%, Singapore -36bps = negative divergences vs. Asian Equities, and proxies for an Asian growth slowdown in 08'
EUROPE cant hold any semblance of a positive rally, trading flattish this morning despite up moves in the US and Asia... Fundamentals ruling the day after the ECB's Trichet comments were crystal clear to anyone with a good handle on the English language:
Dec. 19 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said his economy faced a ``more protracted'' period of elevated inflation than previously expected, signaling he's not planning to cut interest rates to ease a credit squeeze. ``The risks to price stability over the medium term are clearly on the upside,'' Trichet told the European Parliament's economic and monetary affairs committee in Brussels today. ``The ECB's Governing Council stands ready to counter upside risks to price stability.''
1. FTSE has London traders all bummed out as it continues to break down technically = MCM Trend in the UK moves to negative; i've been holding off here, partly because i'm Scottish, but mostly because i didnt want to get runnover by a surprise ECB rate cut ... that isnt happening, as of Trichet's teach in this morning
2. Germany down 67bps, showing a negative divergence to European Equities, after they printed the highest PPI (November) in 19mth at +2.5% = stagflation...
3. Czech stocks down -1.5%, Polish stocks down another 46bps = the beacons for the "Its Global This Time" market bulls in Eastern Europe are started to fade; negative tell...
OTHER MCM Geopolitical/Country callouts... enter the African Socialist Left ...
1. South African stocks pummelled for the 2nd day in a row, closing down another 2.7% after Jacob Zuma took 61% of the vote to win leadership of the ANC party; after a decade of rule, Mbeki is out, and the guy who got fired in 05', then charged of rape this year, is plugged in as the Leftist = political destabilization in a country seeing rampant inflation and social unrest is not good... keep your eyes on this canary re my MCM Theme of Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -Nov07'
2. Brazil finally broke the losing streak, closing +2.1% at 61.096 = MCM Trend in Brazil remains positive; from a country perspective its the best way to be long my MCM Theme of 'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
COMMODITIES seeing rotation out of energy and into the Base Metals - for a day... 1. CRB Commodity index down 28bps yesterday to 347... = remains inflationary; ask the Africans who have to buy what the PM in midtown outsources to his assistant
2. Oil down under $90/barrel again, partly because the Kurdish geopolitical alarm bell toned down, but mostly because the technicians are starting to call for the 'Head & Shoulders" formation on the crude chart... there is no scientific method asserting this, but there is certainly an artistically qualitative one that traders on Wall St will consider...
3. Gold looks as solid as it feels (if you bite into it), moving higher yesterday, and now up a healthy +1.6% for the week to date, leading most commodities = inflationary
4. Corn/Wheat/Soy continue to impress despite concerns of pending rain this weekend in Kansas; the Aussi's confirmed their 2008 outlook of weak supply relative to demand (Australia is the world's 5th largest exporter of wheat) = inflationary...
5. Base Metals finally catch a rally off the lows for a +1% ish up move across the group = nothing to get hopped up about; 1 day does not a trend make
RATES/CURRENCIES...
1. 2yr rates 3.14%; 10yr yields down small to 4.09% = yields on 10yr notes looking less appealing vs. US equity yields again...
2. US$ remains pinned at this 77.50 line, deafening the cries of those who were calling for the Euro to replace the US$ as the world's "reserve currency"... isnt it amazing how low levels of conviction people have in anything European? remember when our canoe paddling divorcee Sarkozy was supposed to ride onto the global economic science as the Napoleon of Capitalism? whats he doing now, sunning himself? Legacy Europe remains entrenched in an economic of pending stagflation...
3. Euro 1.44 making a 7 month low vs the US$ = hammers home whatever the point was that i was just trying to make!
Private Equity/M&A/Credit/Hedge Funds ... Litigation and Redemption time...
1. Federal Prosecutors are investigating Bears Stearns Mortgage Backed Securities PM Ralph Cioffi for unloading $2M of his own $, pre losing all his clients $, ahead of his subprime implosion... allegedly of course... but this is just a disaster anyway you want to look at it... Bear was once regarded as one of the finest investment firms in the Financial Industry, and now we're seeing the greed and irresponsibility of a certain few individuals, washout decades of relationship and trust building ... BSC is down 43% year to date, and now there's talk that Jimmy Cayne and his team arent going to pay themselves bonuses this yr ... the curtains are up
2. Goldman Global Alpha Fund news just isn't good - on their conference call yesterday, Goldman's CFO walked through the simple reality that these "quants" he writes paychecks to are glorified levered long only traders (well, he didnt say that specifically - thats my read through)... the Alpha fund was apparently down something on the order of 6% for November, and after what happened to these guys in August (remember, they blew up and called it a statistical event of 'unprecedented standard deviations' vs. what should happen), this makes for clear MCM Trend, thats pointing down... when your investment strategy only makes money in up tapes, you are not what i consider a hedge fund - you are simply one more strategy being revealed as a long biased levered financial product of the bull market's cycle... i've said this on every trading floor of every hedge fund i have worked on - Hedge Funds Hedge!... Goldman Alpha will be seeing serious redemptions, and the risk management leaders of the Mother Ship GS (who i was very complimentary of yesterday), are doing the right thing again in taking down their exposure to this one way investment strategy.. to paraphrase the man, Warren Buffet, 'when the tide rolls out, everyone who is swimming naked gets revealed'... MCM Theme remains 'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08 _________________________________________________________________
MCM Trades/Fades
1. sold my Costco (COST) yesterday ... i bought a trading position ahead of their quarter last week, and dont like how the stock has traded since; the quarter was solid, and no one cares...the way it acts on market up moves also tells me not enough hedge funds are short it either, which is a negative in the balance of return optionality that i look for...
2. sold 1/3 of my Gold (GLD) position yesterday... trending US Dollar strength is becoming a negative headwind for this position, so with GLD having a +1.43% up day for me, i trimmed the profit tree...
3. shorted another 1/3 of South Korea ETF (EWY) yesterday... because it was up big into the close and i wanted to be fully hedged (dollar neutral) in my long Russia (RSX), short Korea (EWY) pair...
4. shorted some American Express (AXP) yesterday, $52.65... from a MCM Momentum modelling perspective, it looks obvious to me that Q1 of AXP's 2007 Fiscal Year was as good as it gets; this is a cyclical business, US credit card statistics are finally showing overdue strain, and i expect them to guide down the Q108' consensus of $.93/share, when they report their upcoming Q4... short interest is very low, at 1.5% of the float, and the stock is clearly breaking down technically
5. covered my Jack in The Box (JBX) yesterday; $25.74... short gains are meant to be taken, especially in MCM shorts where the bulls are exhibiting the most obvious technical fear... this has been a beauty; +9.6% gain booked, despite Wachovia's upgrade last week - we'll reshort higher...
6. covered my Einstein Noah (BAGL) yesterday, $16.43... another large win for MCM here on the short side... it looks like someone is finally paying attention to wheat costs; BAGL traded 3x average daily trade yesterday, closing down 10.4%... fundamental short case remains, but +18.5% gains in an up tape work for me... re-short higher
______________________________________________________________
MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ Bottoming is a Process, not a Point' -November07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
_______________________________________________________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70, sold 27.65) = +3.9%
HOG (bought 45.10, sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30 , sold 21.51) = -3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
COST (bought 69.67, sold 68.74) = -1.3%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74, cover 25.80 ) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51, cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48, cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37) = +7.2%
BKC (short $28.02, cover 27.70 ) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48) = +3.0%
JBX (short 28.49, cover 25.74) = +9.6%
BAGL (short $20.15, cover 16.43) = +18.5%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
Tuesday, December 18, 2007
MCM Macro Morning 12/18/07... 'In Goldman, does America trust?'
Given all of the Populist, Socialist, and Bullish Protectionist year end exercises that Washington and Wall Street have been exhausting themselves with since the US Market's October highs, i feel the timing is appropriate to provide a refreshing glass of one of Scotland's finest Capitalists, Adam Smith:
"The chance of gain is by every man more or less overvalued... and the chance of loss, is by most men, undervalued"
MCM starts with trying to understand potential market risks, and then do our very best to manage those risks. At no time should you entrust your capital with someone who doesnt do either, and all the while allows his/her personal greed confirm Smith's aforementioned point.
Provided that the most radical end of Ben Stein's implications surrounding Goldman Sachs do not play out as fact, the most relevant fact i see out there this morning is that the Goldman score is higher than anyone else's. While conspiracy theories tend to follow the most successful of this world, until proven otherwise, there is no Barry Bonds in the ticker GS. These guys are providing impressive leadership in a Financial Industry that is losing credibility by the day.
Goldman understands risk management. Goldman understand how to win. A job well done.
May Capitalists from Kirkcaldy, Scotland to Thunder Bay, Ontario, celebrate this win... and pray that Hillary and Obama do not use GS's earnings per share as their political football in 2008.
Good luck out there today,
KM
_______________________________________________________________
ASIA tried its best to keep it together, but put in its 5th consecutive down day ... the masses seem to be finally concerned with what we've been harping on for 6 weeks - Global Industrial Production growth slowing in 2008...
1. China down another -84bps, post the People's Bank of China making explicit commentary concerning extra lending curbs = hawkish; the Chinese have raised rates 10x this year, and since the US Fed Centrists are so well versed in what rate cuts should/could do for their levered long portfolio, i suspect they're finally being forced to make the mental transition to what the effects will be in 2008 when a central bank is tightening, expeditiously...
2. Japan down again, but only 27bps this time; Nikkei closed 15,207 = MCM Trend remains negative here; next technical reference point for the Nikkei is the 14,837 line it closed at on 11/21/07
3. S.Korea +1.2%, leading Asia with a positive divergence day = one day does not a trend make however; the KOSPI is down 9.7% since we got short it; all bounces are to be shorted; MCM Trend in the Korean ETF (EWY) remains negative
4. Thailand -45bps, Indonesia -70bps, India -94bps = global industrial production growth concerns in 2008 are mounting...
EUROPE finally gets a bid this morning; the patient may be out of bed - but remains technically ill and on watch, despite Mervin King's attempt to assuage concerns, and a more dovish inflation (CPI) print out of the UK at +2.1% (November) than what we saw here in the US last week...
1. FTSE +84bps providing some leadership for European equities, so far = positive divergence on a relative basis to the region, but remains cloudy on an absolute basis; FTSE 6,346 or better, on a closing basis, is what stocks in London desperately need
2. Russia +34bps = positive divergence; again... MCM Trend remains positive on Putin/Medvedev; bought a position in the Russian ETF (RSX) yesterday
3. Poland down -1.2% = negative divergence vs. the region, and remains a stealth economic indicator for prospects of global industrial production growth in 08'
OTHER MCM Geopolitical/Country callouts...
1. Saudi stocks are flat out flying; up another 2.8% yesterday = major positive divergence vs. Global Equities...Middle East market share story emerging for 2008? could they surpass nominal growth rates of Asian and Eastern European markets? They are far from the Populists or Socialists we are seeing here in the US and Western Europe... a vote for Capitalism!
2. Australia down another 42bps, New Zealand -92bps = export led economies that are catching a cold as concerns of Asian Industrial Production Growth mounts...
3. Mexico tattooed yesterday, closing down another -3.4% = negative divergence, trading with almost a 3 beta to US weakness; MCM Trend remains negative on Mexico - i booked the gain yesterday, and will reshort when the EWW (Mexican ETF) turns green again
4. Brazil down materially -4.2% to 59,828 = short term technical trend lines in the Bovespa are broken; now a 9.1% correction from the all time highs made on 12/6/07
COMMODITIES continue to impress both absolutely, and relatively, outperforming most asset classes...
1. CRB Commodity index started the week trading flat on the day = positive divergence vs. the SP500 which closed down -1.5%
2. Oil digging in its heels, $91.44 last, post an incursion by Kurdish rebel troops in Northern Iraq = inflationary with a sprinkle of geopolitical risk to keep traders "honest"
3. Gold looks solid, trading back > the psychologically relevant $800 line = inflationary, and impressive considering the continued rally we are seeing in the US Dollar
4. Corn traded to a 9mth high intraday yesterday, then closed $4.34; wheat made new highs intraday, trading over $10/bushel, and closed at $9.65; soy looks like Balboa at $11.77... and this all in the face of a US$ rally... = 'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
5. Base Metals weakness; "do you hear me now?"... yeah you do... Base Metals are already down 7.6% for December alone - thats even worse than one of those 130/30 levered long funds out there this moth = rinse and repeat the aformentione MCM Theme - Global Industrial Production Growth is slowing!
RATES/CURRENCIES... more of the same from late last week...
1. 2yr rates wont back down, still pinned up at 3.22%; 10yr rates hung up at 4.16% = as good a proxy out there for short term inflationary trends as anything you want to look at right now; be certain that this is where Bernanke is doing the required reading
2. US$ wont budge off its 3 week highs either, trading 77.45 = positive vote for Bernanke's recent display of pseudo sobriety, in not cutting down the fed Funds rate like a Christmas tree...
3. Euro 1.44, Pound Sterling 2.01, Yen 113.40, = all new 6 week trading lows; 'US$ Bottoming is a Process, not a Point' -November07' ...
Private Equity/M&A/Credit ... the Lawyers are coming!
1. Business Week article re the SEC and US Attorneys office in Brooklyn unearthing the insiders at Bear Stearns ... "the question is", is this the beginning of a 1999-2000 Internet bubble fallout litigation redo? Lawyers are licking their chops... and Hillary is on the blue collar campfire stump directing them... buyer of "oversold" brokerage stocks beware
2. "Floridians blaming Wall Street on losing their pension $" getting plenty of national media attention... this is frightening within the context of the upcoming US Election debates; the Democrats are going to take this political football and spike it
3. Donald Trump's stock is trading down 5% pre market open, after Moody's put his debt on review for downgrade = if the "Don's" resurgence in American pop culture didnt reflect the peak of a disease called leverage, i dont know what did ... history wont look back kindly on this segment of the movie
4. US Mall "owner" Centro, has now lost 86% of its value = turns out that these Australians dont "own" anything = all leverage ($3.9B in Aussi Dollars of Debt they need to refinance?)... they are the 5th largest mall operator in the US however, with 700 of them! It is indeed "Global this time" folks... i am quite pleased to remain short Taubman Centers (TCO)
5. CSK Auto (CAO) finally printed their quarter, and #'s were horrible... i only point this one out because this represents one of the major hedge fund "investment strategies" out there that has come under heavy duress ever since the US market's liquidity taps were turned off - and that, of course, is "Concentrated Activists", which i think is just another form of some of the leveraged strategies you are seeing blow up in the credit markets - classic illiquidity traps... it would be "mean" to point out, who the got "active" or who got "concentrated" and when, but there is a big difference between buying all the way down because you have to (averaging down) versus buying big because you have independent research edge on an asset that no one else understands... CAO has dropped 72% from the peak of the "hedge fund" noise in July... no one had edge, other than the shorts, who realized all these guys were stuck long it, together... 'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
_________________________________________________________________________________________________________________________
MCM Trades/Fades
1. existing short positions i've added to on strength in the last 2 trading days: Research in Motion (RIMM), Jack in the Box (JBX), BonTon Stores (BONT), Target (TGT)...
2. shorted Taubman Centers (TCO) on friday morning, $52.73, after the CEO set overly optimistic expectations... reasoning is in that note
3. re-shorted Autonation (AN) on friday... stock was up, and i was looking to gross up short exposure to the same theme we've been on with these perceived "Value" names ... there is no need to own anything Lampert into December end, never mind an auto sales company based in Ft Lauderdale, Florida, where there is no need for debate as to whether there is or isnt a local recession... Street Revenue estimates for their FYQ1 and Q2 08' look way too high... levered up balance sheet in the wrong place, at the wrong time...
4. re-shorted Tandy Leather (TLF) again yesterday... stock had a phantom bid with no conviction behind it, so i had to go back to the well here again... this company has all of the style factors that any investor looking for a holiday reprieve from the screens wants to avoid: small cap, US centric retailer, who just guided down #'s ... the big % gains here have been made, but its still a smart hedge into yr end tax loss selling...
5. bought the Russian ETF (RSX), $49.32 yesterday; now that were out of EWH (Hong Kong), i like it long vs. our EWY (Korean short)... patience for Putin paid off; the market gave us an 8.5% correction in the RSX since it peaked on December the 10th - we've discussed our relative bullish view of Team Putin & Medvedev, so i wont waste space here repeating as much...
6. bought Electronic Arts (ERTS) on sale, for Christmas, yesterday ... apart from being one of the big holiday product cycle winners, stylistically, this has a lot of what i want to be long: market cap, liquidity, US exporter with organic international sales leverage, and not a hedge fund hotel on the holders list; so if this company comes out a winner from the holiday season, the momentum chase will undoubtedly re-discover itself here; $61 retest looks reasonable, for starters... dont forget that competitor, Activision (ATVI), went from $19 to $27 in a hurry, post the Vivendi deal earlier this month...
7. covered my Sears Holdings (SHLD), $104.37... as sure as the sun has risen in the East, since March this has been the contrarian investment of the year... right now, there isnt a name i get more questions on from my community of contacts... there is no tax efficiency in "holding" short gains for the long term - shorts are meant to be traded, and gains meant to be taken... hoping to reshort it again on strength
8. covered my Burger king (BKC) yesterday... it gapped down on the open alongside the US market, and i opted to book the gain... short thesis has a duration that plays out in 2008, and by the looks of it, the current holders are going to make sure it closes out 2007 the way they want it to... sometimes the best thing to do as a short seller, is do nothing...
9. covered my Mexican ETF (EWW) yesterday into the closing lows, down 4% day... short high, cover low... simple model for those who want to get paid in the land of reality vs. that of the theoretical... i'll re-short it on an up day; fundamental thesis remains
10. covered my General Electric (GE) yesterday on the close 36.48... short gains are meant to be taken, and "to be honest with you", i have no idea why this stock was so easy to establish such a good cost basis in on the analyst day where Immelt issued his outlook ... easy name to trade aggressively with a short bias, in the immediate term...
____________________________________________________________________________________________________________________________________
MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ Bottoming is a Process, not a Point' -November07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
_______________________________________________________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70, sold 27.65) = +3.9%
HOG (bought 45.10, sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30, sold 21.51) = -3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74, cover 25.80) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51, cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48, cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37) = +7.2%
BKC (short $28.02, cover 27.70) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48) = +3.0%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
"The chance of gain is by every man more or less overvalued... and the chance of loss, is by most men, undervalued"
MCM starts with trying to understand potential market risks, and then do our very best to manage those risks. At no time should you entrust your capital with someone who doesnt do either, and all the while allows his/her personal greed confirm Smith's aforementioned point.
Provided that the most radical end of Ben Stein's implications surrounding Goldman Sachs do not play out as fact, the most relevant fact i see out there this morning is that the Goldman score is higher than anyone else's. While conspiracy theories tend to follow the most successful of this world, until proven otherwise, there is no Barry Bonds in the ticker GS. These guys are providing impressive leadership in a Financial Industry that is losing credibility by the day.
Goldman understands risk management. Goldman understand how to win. A job well done.
May Capitalists from Kirkcaldy, Scotland to Thunder Bay, Ontario, celebrate this win... and pray that Hillary and Obama do not use GS's earnings per share as their political football in 2008.
Good luck out there today,
KM
_______________________________________________________________
ASIA tried its best to keep it together, but put in its 5th consecutive down day ... the masses seem to be finally concerned with what we've been harping on for 6 weeks - Global Industrial Production growth slowing in 2008...
1. China down another -84bps, post the People's Bank of China making explicit commentary concerning extra lending curbs = hawkish; the Chinese have raised rates 10x this year, and since the US Fed Centrists are so well versed in what rate cuts should/could do for their levered long portfolio, i suspect they're finally being forced to make the mental transition to what the effects will be in 2008 when a central bank is tightening, expeditiously...
2. Japan down again, but only 27bps this time; Nikkei closed 15,207 = MCM Trend remains negative here; next technical reference point for the Nikkei is the 14,837 line it closed at on 11/21/07
3. S.Korea +1.2%, leading Asia with a positive divergence day = one day does not a trend make however; the KOSPI is down 9.7% since we got short it; all bounces are to be shorted; MCM Trend in the Korean ETF (EWY) remains negative
4. Thailand -45bps, Indonesia -70bps, India -94bps = global industrial production growth concerns in 2008 are mounting...
EUROPE finally gets a bid this morning; the patient may be out of bed - but remains technically ill and on watch, despite Mervin King's attempt to assuage concerns, and a more dovish inflation (CPI) print out of the UK at +2.1% (November) than what we saw here in the US last week...
1. FTSE +84bps providing some leadership for European equities, so far = positive divergence on a relative basis to the region, but remains cloudy on an absolute basis; FTSE 6,346 or better, on a closing basis, is what stocks in London desperately need
2. Russia +34bps = positive divergence; again... MCM Trend remains positive on Putin/Medvedev; bought a position in the Russian ETF (RSX) yesterday
3. Poland down -1.2% = negative divergence vs. the region, and remains a stealth economic indicator for prospects of global industrial production growth in 08'
OTHER MCM Geopolitical/Country callouts...
1. Saudi stocks are flat out flying; up another 2.8% yesterday = major positive divergence vs. Global Equities...Middle East market share story emerging for 2008? could they surpass nominal growth rates of Asian and Eastern European markets? They are far from the Populists or Socialists we are seeing here in the US and Western Europe... a vote for Capitalism!
2. Australia down another 42bps, New Zealand -92bps = export led economies that are catching a cold as concerns of Asian Industrial Production Growth mounts...
3. Mexico tattooed yesterday, closing down another -3.4% = negative divergence, trading with almost a 3 beta to US weakness; MCM Trend remains negative on Mexico - i booked the gain yesterday, and will reshort when the EWW (Mexican ETF) turns green again
4. Brazil down materially -4.2% to 59,828 = short term technical trend lines in the Bovespa are broken; now a 9.1% correction from the all time highs made on 12/6/07
COMMODITIES continue to impress both absolutely, and relatively, outperforming most asset classes...
1. CRB Commodity index started the week trading flat on the day = positive divergence vs. the SP500 which closed down -1.5%
2. Oil digging in its heels, $91.44 last, post an incursion by Kurdish rebel troops in Northern Iraq = inflationary with a sprinkle of geopolitical risk to keep traders "honest"
3. Gold looks solid, trading back > the psychologically relevant $800 line = inflationary, and impressive considering the continued rally we are seeing in the US Dollar
4. Corn traded to a 9mth high intraday yesterday, then closed $4.34; wheat made new highs intraday, trading over $10/bushel, and closed at $9.65; soy looks like Balboa at $11.77... and this all in the face of a US$ rally... = 'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
5. Base Metals weakness; "do you hear me now?"... yeah you do... Base Metals are already down 7.6% for December alone - thats even worse than one of those 130/30 levered long funds out there this moth = rinse and repeat the aformentione MCM Theme - Global Industrial Production Growth is slowing!
RATES/CURRENCIES... more of the same from late last week...
1. 2yr rates wont back down, still pinned up at 3.22%; 10yr rates hung up at 4.16% = as good a proxy out there for short term inflationary trends as anything you want to look at right now; be certain that this is where Bernanke is doing the required reading
2. US$ wont budge off its 3 week highs either, trading 77.45 = positive vote for Bernanke's recent display of pseudo sobriety, in not cutting down the fed Funds rate like a Christmas tree...
3. Euro 1.44, Pound Sterling 2.01, Yen 113.40, = all new 6 week trading lows; 'US$ Bottoming is a Process, not a Point' -November07' ...
Private Equity/M&A/Credit ... the Lawyers are coming!
1. Business Week article re the SEC and US Attorneys office in Brooklyn unearthing the insiders at Bear Stearns ... "the question is", is this the beginning of a 1999-2000 Internet bubble fallout litigation redo? Lawyers are licking their chops... and Hillary is on the blue collar campfire stump directing them... buyer of "oversold" brokerage stocks beware
2. "Floridians blaming Wall Street on losing their pension $" getting plenty of national media attention... this is frightening within the context of the upcoming US Election debates; the Democrats are going to take this political football and spike it
3. Donald Trump's stock is trading down 5% pre market open, after Moody's put his debt on review for downgrade = if the "Don's" resurgence in American pop culture didnt reflect the peak of a disease called leverage, i dont know what did ... history wont look back kindly on this segment of the movie
4. US Mall "owner" Centro, has now lost 86% of its value = turns out that these Australians dont "own" anything = all leverage ($3.9B in Aussi Dollars of Debt they need to refinance?)... they are the 5th largest mall operator in the US however, with 700 of them! It is indeed "Global this time" folks... i am quite pleased to remain short Taubman Centers (TCO)
5. CSK Auto (CAO) finally printed their quarter, and #'s were horrible... i only point this one out because this represents one of the major hedge fund "investment strategies" out there that has come under heavy duress ever since the US market's liquidity taps were turned off - and that, of course, is "Concentrated Activists", which i think is just another form of some of the leveraged strategies you are seeing blow up in the credit markets - classic illiquidity traps... it would be "mean" to point out, who the got "active" or who got "concentrated" and when, but there is a big difference between buying all the way down because you have to (averaging down) versus buying big because you have independent research edge on an asset that no one else understands... CAO has dropped 72% from the peak of the "hedge fund" noise in July... no one had edge, other than the shorts, who realized all these guys were stuck long it, together... 'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
_________________________________________________________________________________________________________________________
MCM Trades/Fades
1. existing short positions i've added to on strength in the last 2 trading days: Research in Motion (RIMM), Jack in the Box (JBX), BonTon Stores (BONT), Target (TGT)...
2. shorted Taubman Centers (TCO) on friday morning, $52.73, after the CEO set overly optimistic expectations... reasoning is in that note
3. re-shorted Autonation (AN) on friday... stock was up, and i was looking to gross up short exposure to the same theme we've been on with these perceived "Value" names ... there is no need to own anything Lampert into December end, never mind an auto sales company based in Ft Lauderdale, Florida, where there is no need for debate as to whether there is or isnt a local recession... Street Revenue estimates for their FYQ1 and Q2 08' look way too high... levered up balance sheet in the wrong place, at the wrong time...
4. re-shorted Tandy Leather (TLF) again yesterday... stock had a phantom bid with no conviction behind it, so i had to go back to the well here again... this company has all of the style factors that any investor looking for a holiday reprieve from the screens wants to avoid: small cap, US centric retailer, who just guided down #'s ... the big % gains here have been made, but its still a smart hedge into yr end tax loss selling...
5. bought the Russian ETF (RSX), $49.32 yesterday; now that were out of EWH (Hong Kong), i like it long vs. our EWY (Korean short)... patience for Putin paid off; the market gave us an 8.5% correction in the RSX since it peaked on December the 10th - we've discussed our relative bullish view of Team Putin & Medvedev, so i wont waste space here repeating as much...
6. bought Electronic Arts (ERTS) on sale, for Christmas, yesterday ... apart from being one of the big holiday product cycle winners, stylistically, this has a lot of what i want to be long: market cap, liquidity, US exporter with organic international sales leverage, and not a hedge fund hotel on the holders list; so if this company comes out a winner from the holiday season, the momentum chase will undoubtedly re-discover itself here; $61 retest looks reasonable, for starters... dont forget that competitor, Activision (ATVI), went from $19 to $27 in a hurry, post the Vivendi deal earlier this month...
7. covered my Sears Holdings (SHLD), $104.37... as sure as the sun has risen in the East, since March this has been the contrarian investment of the year... right now, there isnt a name i get more questions on from my community of contacts... there is no tax efficiency in "holding" short gains for the long term - shorts are meant to be traded, and gains meant to be taken... hoping to reshort it again on strength
8. covered my Burger king (BKC) yesterday... it gapped down on the open alongside the US market, and i opted to book the gain... short thesis has a duration that plays out in 2008, and by the looks of it, the current holders are going to make sure it closes out 2007 the way they want it to... sometimes the best thing to do as a short seller, is do nothing...
9. covered my Mexican ETF (EWW) yesterday into the closing lows, down 4% day... short high, cover low... simple model for those who want to get paid in the land of reality vs. that of the theoretical... i'll re-short it on an up day; fundamental thesis remains
10. covered my General Electric (GE) yesterday on the close 36.48... short gains are meant to be taken, and "to be honest with you", i have no idea why this stock was so easy to establish such a good cost basis in on the analyst day where Immelt issued his outlook ... easy name to trade aggressively with a short bias, in the immediate term...
____________________________________________________________________________________________________________________________________
MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ Bottoming is a Process, not a Point' -November07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
_______________________________________________________________________________________________
Closed Out Positions (realized gains in green, losses in red)
Long
EWH (bought 20.70, sold 21.35) = +3.1%
BBY (bought 46.60, sold 49.40) = +6.0%
MLHR (bought 26.70, sold 27.65) = +3.9%
HOG (bought 45.10, sold 49.96 ) = +10.8%
EAT (bought 21.54, sold 22.44) = +4.2%
EBAY (bought 31.70, sold $34.91) = +10.1%
TOL (bought 22.30, sold 21.51) = -3.5%
EWH (bought $22.73. sold 21.98) = -3.2%
Short
RIMM (short 113.90, cover 111.60) = +1.0%
DAVE (short 14.24 , cover 13.60) = +4.5%
DLTR (short 28.51, cover 26.47) = +7.2%
HTZ (short 19.29, cover 18.58 ) = +3.7%
TGT (short 57.93 , cover 59.04 ) = - 1.9%
SPG (short 90.60, cover 94.10) = -3.9%
LIZ (short 25.58, cover 24.19) = +5.4%
BKC (short 26.74, cover 25.80) = +3.5%
EWP (short 68.03, cover 67.47) = -0.82%
HAS (short 27.51, cover 26.35) = +4.2%
DLTR (short 29.52, cover 28.18 ) = +4.5%
CPB (short 35.62, cover 36.76) = -3.2%
IPAR (short 20.48, cover 16.47) = +19.6%
TLF (short 4.04, cover 3.27) = +19.1%
AN (short 16.99, cover 16.70) = +1.7%
WYN (short 28.19, cover 27.39) = +2.8%
MCD (short 63.35, cover 61.22) = +3.4%
DLTR (short 29.46, cover 27.66) = +6.1%
MA (short 219.44, cover 212.72) = +3.1%
SHLD (short $112.51, cover 104.37) = +7.2%
BKC (short $28.02, cover 27.70) = +1.3%
EWW (short 59.40, cover 55.83) = +6.0%
GE (short 37.60, cover 36.48) = +3.0%
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
Monday, December 17, 2007
MCM Macro Weekend Strategy, 12/16/07...
On this day, in 1944, the 'Battle of the Bulge' began... which, of course, turned into one of the biggest land battles in US military history.
US Economic history, is turning the pages day to day now on what we could conceivably look back on as the largest onslaught that the post World War II US banking system has ever faced... regulating Access to Credit/Capital and breaking down the securitization function of the US economic system are as serious a set of fundamental matters as any you should be considering.
After the market close of Wednesday December 12th, i downgraded the MCM Trade and the MCM Trend to negative.
In US Trading this week, the broad indices weakened, again. Stylistically, Small Caps continued to underperform, and instead of seeing the 'Tech' laden Nasdaq outperform the S&P, they traded down together in parity:
Week of December, 10th, 2007: Dow (2.10%), S&P (2.44%), Nasdaq (2.60%), Russell (4.02%).
Month of December to date: Dow (0.24%); S&P (0.89%); Nasdaq (0.95%); Russell (1.80%).
YTD 2007: Dow +7.03%; S&P +3.50%; Nasdaq +9.13%, Russell (4.28%).
This week's aggressive Wall Street and US Government led Populist offensives, ostensibly supporting the Fed Centrist Bull Batalion, proved to be unsuccessful. The Fed Centrists came at the 'Consensus Bears' with nothing short of a multiple front President Bush, Hank Paulson, and Ben Bernanke 'Surge': more Fed rate cut "shock & awe", a surgically timed free money air raid via the newly minted 'Term Auction Facility' (TAF), and the ongoing subprime 1-888-995-HOPE line bailouts.
This long standing Bull market in US Equities is under siege. The Republicans and the Fed are running out time, and out of bullets. Its going to be a long, hard, road to the next Fed meeting on January 30th, particularly for those managing levered long businesses.
MCM Trade (Immediate) = DOWN: after a low volume short covering runnup to start the month, the S&P 500 is breaking down again; the heart of the US Economic system (Financials and Consumer related companies) continue to lead decliners, and it will take brave portfolio managers to step up and buy these sectors for real into year end...
MCM Trend (Intermediate) = DOWN: 1489 was support, and thats gone... as the facts change, i do - this isnt my religion, its my process... if the S&P500 closes below 1464, watch out below...
MCM Themes (Longer Term): all eight of my Themes remain... i had wavering conviction in my US$ call, but thats been fortified by price stability/appreciation - the US$ had another big week, outperforming US Equities and Bonds by a wide margin, +1.7% on the week to 77.44, and +3.2% since i thought this idea was fit enough to print.
US Economic history, is turning the pages day to day now on what we could conceivably look back on as the largest onslaught that the post World War II US banking system has ever faced... regulating Access to Credit/Capital and breaking down the securitization function of the US economic system are as serious a set of fundamental matters as any you should be considering.
After the market close of Wednesday December 12th, i downgraded the MCM Trade and the MCM Trend to negative.
In US Trading this week, the broad indices weakened, again. Stylistically, Small Caps continued to underperform, and instead of seeing the 'Tech' laden Nasdaq outperform the S&P, they traded down together in parity:
Week of December, 10th, 2007: Dow (2.10%), S&P (2.44%), Nasdaq (2.60%), Russell (4.02%).
Month of December to date: Dow (0.24%); S&P (0.89%); Nasdaq (0.95%); Russell (1.80%).
YTD 2007: Dow +7.03%; S&P +3.50%; Nasdaq +9.13%, Russell (4.28%).
This week's aggressive Wall Street and US Government led Populist offensives, ostensibly supporting the Fed Centrist Bull Batalion, proved to be unsuccessful. The Fed Centrists came at the 'Consensus Bears' with nothing short of a multiple front President Bush, Hank Paulson, and Ben Bernanke 'Surge': more Fed rate cut "shock & awe", a surgically timed free money air raid via the newly minted 'Term Auction Facility' (TAF), and the ongoing subprime 1-888-995-HOPE line bailouts.
This long standing Bull market in US Equities is under siege. The Republicans and the Fed are running out time, and out of bullets. Its going to be a long, hard, road to the next Fed meeting on January 30th, particularly for those managing levered long businesses.
MCM Trade (Immediate) = DOWN: after a low volume short covering runnup to start the month, the S&P 500 is breaking down again; the heart of the US Economic system (Financials and Consumer related companies) continue to lead decliners, and it will take brave portfolio managers to step up and buy these sectors for real into year end...
MCM Trend (Intermediate) = DOWN: 1489 was support, and thats gone... as the facts change, i do - this isnt my religion, its my process... if the S&P500 closes below 1464, watch out below...
MCM Themes (Longer Term): all eight of my Themes remain... i had wavering conviction in my US$ call, but thats been fortified by price stability/appreciation - the US$ had another big week, outperforming US Equities and Bonds by a wide margin, +1.7% on the week to 77.44, and +3.2% since i thought this idea was fit enough to print.
-Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
-Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
-Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
-'US$ Bottoming is a Process, not a Point' -November07'
-'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec08
-'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec08'
-'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec08'
-'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'
_______________________________________________________________________________________________________________________________
MCM Macro Strategy Considerations...
Being a "Consumer" analyst for the better part of my career, i hear and read enough on the topic of the US Consumer's health to make you numb...
For the better part of the last 10 years, you can be sure that i would not have had the early success i've had in my investment my career if i wasn't, on balance, bullish on the US Consumer. This has been an unprecedented long term rally in consumer spending that i, and the US stock market, should be thankful for.
The easiest way for an analyst, portfolio manager, banker, or executive to look "smart" in this business is to be long a trend that moves up into the right, for an extended
period of time, like this one has.
That period of time, in US Consumer spending, dates back to the early marriage of Ronald Reagan to the Rainmaker of cheap money, Alan Greenspan. The latest super child born out of their cooperative has provided the US economy with an all time record of 62 consecutive QUARTERS of successive growth in US Real Consumer Spending. Yes, that = 186 months... and a protected environment for that duration of sameness can even make a snow man in Thunder Bay, Ontario, numb.
All the while, the "Trade" off has been leverage. The US Personal Savings rate has been drawn down from 10-12% in the early 1980's, to basically zero today. And theoretical US Household "Net Worth" has increased to a record $58.6 Trillion dollars at the end of Q3 of 2007 (per the Federal Reserve). In the last 5 years, "net worth" was buoyed by Greenspan's biggest US$ sales events, and cheapest money years, inflating the total US base by $21 Trillon alone. Yes, $21 of the $59 Trillion in theoretical "wealth" in this country was created since 2002, and almost 40% of the $21T came from guess where? Yes, you got it, Real estate...
No wonder why people call him the "Maestro"! Alan Greenspan had the easiest lending standards in the history of US Banking - he was the ultimate US Consumer bailout banker!
But what are they going to call Ben Bernanke? the "Bailiff"?
Bernanke's decision to opt for 25 basis points... and not politically pander to Washington and Wall Street this past week (remember Reagan advisor, Art Laffer, calling for a 150 basis point cut!?) stands in stark contrast to what the Fed Centrists have been trained by Greenspan to expect. Ring the Pavlovian alarm bells, and the Rainmaker would print you money.
Perhaps the US Dollar having 3 successive up weeks, outperforming nearly all global asset classes over that time span, reflects the fundamental sobriety of Bernanke's decision to not expedite a complete devaluation of the US currency, as the 'Reaganite Rainmaker' would have... Perhaps Ben Bernanke is a pseudo objective US Economic Cycle analyst, and not a US Consumer easy money banker? Perhaps...
Do we believe in economic cycles? do we believe in capitalism? or do we believe we should have neither, and stay the 'Reaganite Rainmaker''s course, open up the ATM kegs,
and smooth every American Consumer's worries away? Afterall, as some of my old hockey friends would attest, 62 QUARTERS of successively positive US Consumer Spending is one heck of 'Quality Party'!
Speaking of those ATM kegs, David Rosenberg at Merrill broke down the US Mortgage Equity Withdrawal (MEW) stats quite succinctly this week... and they are starting to look "kicked":
"Mortgage equity withdrawal (MEW) continue to slow in the third quarter, falling at
a near 20% annualized rate (or $36 billion) to just under $637 billion (annualized),
the lowest since 4Q03. Gross cash outs were especially soft, plummeting 55%
(annualized) sequentially in 3Q. As a percent of personal disposable income, the
slowdown was even more pronounced falling to 5.2% from 6.3% in 2Q, the lowest
since 4Q06. Active MEW (which consists of refinancing and home equity
borrowing) continued to be very weak, declining another $70 billion to $332 billion
– well off the $575 billion peak set in mid-04, when consumers were actively
using their home equity as ATM machines" -David Rosenberg 12/07
When the ATM's are "kicked", where do you go? How about home to the fridge?, or better yet, to someone else's and use the credit cards? Well, unfortunately, according to Capital One's November #'s, US credit card stats are starting to break down as well... so get in line.
The objective US Economic Cycle analyst would have a hard time disagreeing with Rosenberg or I on this important point as well, and that's quite simply that the Credit Card business is also susceptible to the ups/downs implied within a cycle.
Although, one of my good friends is quite correct in suggesting that I'm moonlighting as a 'Scribe', I'm also working hard on becoming an analyst of cycles... after 186 months, the "US Consumer" spending gig is getting stale...
Best of luck out there this week,
KM
____________________________________________________________
MCM Disclosure/Disclaimer: This email and/or blog is for a select group of my friends, and represents a beta test of an idea that i am incubating. My email and blog writings are prepared without regard to the unique circumstances or goals of those who read them. They do not provide investment advice that should be specifically acted upon without considering the all encompassing range of investment information and/or considerations available in the public domain and/or without considering all appropriate professional advice. This should not be considered a solicitation to buy or sell any security or to participate in any investment strategy. The information and editorials in these writings are not necessarily complete or perfectly accurate and are not guaranteed by Keith McCullough or MCM. This information is protected from disclosure and constitute opinions only as of the date of their issuance. Opinions are subject to change without notice, and Keith McCullough or MCM do not accept any liability whatsoever for any losses estimated to be attributable to any use of this content. Keith McCullough and/or McCullough Capital Management, Inc. likely owns and/or is currently trading in all of the securities cited in these emails and/or blogs.
Saturday, December 15, 2007
Inflation ...
Rohm and Haas to raise vinyl acetate pricesFriday, December 14, 2007 4:45:06 PM (GMT-05:00)Provided by: Reuters News
NEW YORK, Dec 14 (Reuters) - Rohm and Haas Corp on Friday saidits packaging and building materials business as well as its paint andcoatings unit will raise prices on vinyl acetate in North America due to arise in oil prices. The company said that the packaging and building materials increaseswill be up to 10 percent starting on January 1. Increases for vinylacetate-based emulsions will be 5 cents per wet pound. Vinyl acetate is a chemical used in plastics, paper coatings, buildingmaterials and other items. (Reporting by Michael Erman, editing by Carol Bishopric) ((Reuters Messaging: michael.erman.reuters.com@reuters.net; +1 646 2236021))Keywords: ROHMANDHAAS
NEW YORK, Dec 14 (Reuters) - Rohm and Haas Corp
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