MCM Macro Morning 12/10/07... 'Real Men do Epidurals too'

Its year end... and its time for all the guys out there who aren't Consensus Bear headline numb yet, to fess up and take one for the team - Epidurals around the horn!

The women had to have the sentiment side of this trade right earlier than i did - they're more experienced here!! and they had to have understood that "Credit" concerns were becoming consensus, and that the numbing factor of the US Government issued bailout needles were going to provide short term relief...

I'm a process PM - rinse and repeat... no use looking for another toothbrush here this morning; in the immediate term, the point i made yesterday, is the point: The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'... -Dec08'

Thanks again for providing your insights, research edge, and feedback.

Good luck out there today,
KM
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ASIA got spooked by the UBS writedown, and never recovered - but weakness here is finally to be bought...
1. Hong Kong closed down 1.2%, at 28,501 = buy the weakness here (i'm buying more EWH, the HK etf); the Hang Seng looks great technically all the way down to the 27,000 level...
2. China A Shares closed +1.4%, despite govt tightening again, and a very hawkish inflation report for November of +4.6% CPI vs. 3.5%(E) = basic food/energy needs continue to move the Chinese economy into a basic needs import consumption driven economy that will have long term secular inflation impact, globally, for corn/soy/wheat/oil/etc...
3. S. Korea led decliners in Asian markets, closing down another -1.4% = covering more of my position here (EWY is the Korean etf); sell high, buy low

EUROPE looks solid, despite the biggest writedown yet by a European Bank (UBS), and a weak overnight session in Asia, broadly... negative "Credit" headlines are now numbing
1. France + Germany trading +30-35bps, giving short sellers something to Fear... Despite the Euro's rise, German Exports were a lot higher than expected +0.6% m/m, and French Industrial Production growth zoomed higher to +4% y/y which is the fastest since 2005! = better than bad news is good re the Consensus Bear recession case i walked through in MCM Weekend Strategy
2. Swiss stocks are +79bps, despite the UBS writedown; UBS is actually trading +2%! = dont ignore this; the Credit story is stale and numbing the shorts
3. Czech inflation (November) had its highest monthly gain at +5% y/y since 2001, and they bid equities higher on this, Czech stocks are +1% so far = bullish when hawkish data is perceived as positive; again, i think anything better than toxic numbs the Consensus Bear case, short term

OTHER MCM Geopolitical/Country callouts...
1. Poland continues to regain its footing, buoying growth investor hopes, trading +59bps so far this morning = positive divergence vs. leading declining European countries in November...
2. Saudi stocks continue their tear to the upside, + another 1.4% = bullish leadership coming out of the middle east
3. Brazil took a breather on friday, closing down 23bps = traded in line with the US all day; now that Chine/Hong Kong have corrected, Brazilian Equities are the lead horse, Globally...

COMMODITIES traded flat on Friday... but they are getting hopped up for them bushels & beans!
1. CRB Commodity index underperformed equities on the week, closing +.88% = still inflationary...
2. Oil stopped going down Wednesday/Thursday, rallied, and closed the week basically flat = $89/barrel remains inflationary, and you are seeing that in Chinese to Czech inflation reports this morning...
3. Gold held strong on Friday above the $800 line to $805; solid week, with a positive divergence vs. the Index at 2.9% for the week = inflationary...
4. Wheat was +2% straight through the $9 to $9.38, after Canada cut production growth estimates and the Indians were allegedly "calling bid" to replenish their reserves = inflationary... 5. Soy continues higher, $11.24 last; 34 yr high = inflation driven by the aforementioned boom in Chinese basic food consumption needs... = inflationary

RATES/CURRENCIES... finally giving me reason to sell down some of my gross long exposure to Equities...
1. 2yr rates up for the 4th day in a row to 3.08% (= 20 basis point move up); the 10yr yield is up alongside the 2's, trading 4.08% = Bernanke duck taped inside a box; no way he cuts more than 50bps, and i still think he goes 25bps...
2. US$ 76.18, after locking its 2nd up week in a row, monthly highs vs. the Yen and Euro = deflationary factor in the aggregate, but the big move off the oversold lows is now in the rear view mirror...

Private Equity/M&A/Credit ... Epidural for the "Credit" is going to end the world, today, crowd...
1. UBS $10B writedown = largest yet by European bank and represents the #1 Headline on Bloomberg this morning - nobody cares!
2. Societe Generale brings $4.3B of toxic waste (SIV's) back onto their balance sheet
3. Blackstone attempting to smooth over les Chinois i think (remember the price they bonked China with on the BX ipo?, i do)... looks like Schwartzman and Co. are working with the Chinese Sovereign Fund to bid for Rio Tinto = bullish for Metals/Mining M&A; bullish for commodity prices; bullish for the MCM Themes across the board
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MCM Trades/Fades
1. bought Treasury Inflation Protected (TIP) on friday... how about some fatherly pre prom advice - dont go into this Fed Mania meeting on December 11th unprotected; MCM Trend of underlying inflation remains; this will become more obvious to the masses when the November CPI and PPI inflation stats are released ...
2. bought our Hong Kong etf (EWH) back on friday; we like them on sale, and they closed down 5% on the day... long Hong Kong, short South Korea (EWY)
3. bought Gold via the etf (GLD) on friday; bullion was on sale, down 1%... MCM Trend remains bullish here, and this is another way to express our inflation concerns into this week's inflation related economic releases; looking for a retest of the $82 highs we saw in early November...
4. sold the Harley Davidson (HOG), because it was snowing in Westchester... kidding... but the short case at our cost basis was equally ridiculous... nothing has changed here re my MCM Value thesis, other than the price; we'll buy it back on sale, hopefully...
5. selling my Brinker (EAT)... MCM Value is lower; got the squeeze i wanted out of the shorts, and didnt want to get piggy - keep a trade a trade...
6. shorted Gildan Activewear (GIL)... i dont trust this management team; they guided down Q1 on friday, but this isnt a one off issue - Q2/Q3 estimates for 08' need to come down, and they will; margins have peaked at 14.4%, and this is one of the most grossly overvalued stocks i see ... $4.3B in market cap for $1.3B in rolled up revenues (or at least thats the sell side's estimate for 2008); 19x cashflow?... short interest only 2.5% of the float; overowned by the momentum community (Fidelity owns 11%, Trafelet 4%, Wellington 4%, Buckingham 2.4%), and insider selling in November was nauseating...
7. re-shorted Hasbro (HAS) on friday... same thesis, better price on a gap up open...
8. re-shorted Dollar Tree (DLTR) on friday ... same thesis; sell high, buy low... they had a great Q4 last yr ($1.3B in revenue and a record EPS of $0.96), and now thats what they have to compare against and prospects look dim; Family Dollar (FDO) blew up this week, and there is a high likelihood these guys do to...)
9. re-shorted Target (TGT) on friday... just when i thought BoFa's downgrade was going to make me ill (ie i missed the boat), the stock had a great intraday rally ... so we shorted it - their margin structure is breaking down, and so is investor confidence that Ackmanism will save the day... hearing from contacts that December US Retail sales are off to a shaky start, and this chart isnt going to inspire anyone to ignore the fundamentals anymore...
10. shorted Proctor&Gamble (PG) on friday... with the gap up market open squeezing hedge funds six ways to sunday, i was screening for 52 week highs that are overowned and setup to see a fundamental slowdown in their business in 2008... I've traded this one for 7 years, and the history of global economic cycles matters here ... PG opened January 3rd, 2000 at $53.58, blew up, and was trading $28 by March 1st of the same year... this is THE overowned "Its Global This Time" big cap; buyer beware...
11. shorted another 1/3 of Sears Holdings (SHLD)... top candidate to make lower lows, next time the US market cracks ...
12. buying more GPS, but not today... i'm a seller into Barron's pumping it positively over the weekend; since we got long the group into Black Friday, the US Consumer Discretionary stocks (Morgan Stanley Retail Index) have ripped the shorts for a +10.7% move - corn fields are cool, if you are long them!
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MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ Bottoming is a Process, not a Point'
'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'

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MCM Macro Virtual (beta test) Model Portfolio (with cost basis, and relative weightings)
Long
3% EBAY $31.70
6% GPS $19.90
3% ca;MSQ $1.80 CAN$
6% WMT $45.10
3% ca;ZNC $0.49 CAN$
3% DELL $25.95
6% KGC $17.33
3% NYT $16.11
6% DWA $24.72
3% UWN $1.47
6% TIP $104.26
3% EWH $22.73
3% GLD $78.60

Short
2% EWY $67.07 (short South Korean liquidity/banking cycle exposure)
3% EWW $56.11 (short the Mexican economy as a function of its correlation to US GDP growth)
3% WYN $28.19 (short JPM's upgrade, and the Time Share Business cycle)
2% FXM $91.45 (short the Mexican Peso)
3% IPAR $20.48 (scary small cap situation developing here as PG is even getting into the commodity business of fragrance distribution; $15 likely)
2% BONT $11.71 (re-shorted this one friday 11/30 as someone looked to be marking it up for mth end = top current MCM bankruptcy candidate)
3% SHLD $112.51 (re-shorted the hope based bounce post Lampert's letter to his employees; solidifying my stance that he is hostage to what he cant control)
3% TLF $4.04 (i may buy you a leather jacket if this company can hit the revenue estimates i see out there for the next two quarters; Wellington stuck in this micro cap too at 18.6% of the shares... $3.11 looks reasonable; no short interest illiquidity trap)
3% AN $16.99 (Street Revenue estimates for their FYQ1 and Q2 08' look way too high... levered up balance sheet, trying to sell cars in the FL sunbelt; Lamper is stuck with 30% of the shares)
3% GIL $38.63 (i dont trust management; Q2/Q3 estimates for 08' dont look achievable; margins have peaked at 14.4%, and this is one of the most grossly overvalued stocks i see ... $4.3B in market cap for $1.3B in rolled up revenues; 19x cashflow?... short interest only 2.5% of the float; overowned)...
2% HAS $27.15 (mgt team succumbing to Wall St pressures - buying back their stock to preserve EPS, before the bottom falls out)
2% DLTR $29.46 (they had a great Q4 last yr, and now thats what they have to compare against; Family Dollar (FDO) blew up this week, and there is a high likelihood these guys do to...)
2% TGT $56.20 (their margin structure is breaking down, and so is investor confidence that Ackmanism will save the day... December sales off to a shaky start?)
2% PG $74.70 (52 week high on the morning of 12/7/07; overowned and setup to see a fundamental slowdown in their business in 2008... remember this stock in 2000? the global economic cycle matters here...)
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Closed Out Positions
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%


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%

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 whatseoever for any losses estimated to be atttributable 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.