One of my favorite Chinese Proverbs...
One of the industry's better contrarian short sellers, Doug Kass of Seabreeze Partners, is now saying on his Street.com Blog "Hello cold linoleum, my old friend" (as in he is on the floor at this point, curled up in a ball)... and being an experienced short seller who has had my fair share of bouts of being squeezed... i have to say, that i am thanking my lucky stars that its not happening to me this time... this has been an unmittigated Waterboarding of the Shorts!
Of course, i'll be the first to agree that the fundamental facts out there do not cease to exist because the market is ignoring them... but that intellectual rigor certainly doesnt mean that being prophetically stubborn with Consensus Bear short positions is going to get you paid in December either... the S&P500 is now +7.7% from the November 26th closing low...
Yes, the Fundamentals are as concerning as they have been... but Consensus has become as obviously Bearish as it has been... Strategist, Jim Bianco, at Bianco Research (who's website claims "Independent Objective Original"), was all over CNBC power hour yesterday with the backward looking revelation that the issues in the US Credit/Banking system are 'severe', 'irreparable', etc, etc... Yes, we all agree Jim... its easy to see all of this now, isnt it?
If its not obvious to Jim, that its obvious to everyone else, yet, or if i'm just annoying you because you've missed this powerful market up move ... open the Wall Street Journal this morning, and you'll have another Consensus Bear check:
"Economists increasingly concerned about recession "- WSJ"Citing the results from the latest WSJ.com survey, the Journal reports that economists now place the chances of a recession at 38%, the highest in more than three years, and up from 35.3% in the November survey"
Where were these economists in October, pre November's US stock market swan dive? The "pain trade", and the MCM Trade, remains to the UPSIDE, and the burden of proof rests on the Consensus Bears shoulders...
Its been a fun ride; I'll be selling into strength today,
KM
___________________________________________________________________________________________________________ ASIA gets its turn taking the epidural, and now looks the healthiest its been in weeks... Hong Kong regaining its leadership
1. Hong Kong stocks zoomed higher, closing +2.6%, on the heels of China putting in its 3rd consecutive up day = staying long our EWH (HK etf); at 29,226 the Hang Seng's chart is shaping up for a big squeeze - into yr end, the Chinese Bulls can make grown short selling men cry like babies...
2. Japan had another up day, closing +76bps = +8.1% rally out of the bottom of the hole the Nikkei saw November 21st; still the cheapest (mature) stock market globally
3. Indonesia up another 74bps, post their Finance Minister guiding to accelerating GDP growth in 2008 over what looks to be close to a +7% yr in 2007 = bullish
EUROPE taking a breather, post a solid two week runnup... but Putin Power is differentiating itself once again as Europe's most convincingly bullish market
1. Russia +85bps, leads all legacy tapes this morning in Europe, post Putin appointing Dimitry Medvedev as his successor = very bullish... Medvedev is not a KGB guy - he's a 42yr old lawyer/businessman/capitalist who has already made his mark at the Chairman of Russian energy titan Gazprom... by my math, Medvedev was only 24yrs old when the Berlin Wall fell; the tectonic plates of global finance/power are shifting under your keyboards this morning ...
2. FTSE is trading off 54bps in London this morning = technical support is 6,412; stocks are still comfortably above that line ...
3. Spain down 12bps = positive divergence vs. most European countries this morning - I'm happy we covered our EWP (Spain etf), and technically, it doesn't look like it is going to pay me being Mr Fundamental and re-shorting this government's levered balance sheet just yet - patience...
OTHER MCM Geopolitical/Country callouts...
1. Saudi stocks remain on fire, up another +3.1% = represents capital inflows betting that the Middle East takes over as a global growth leader in 2008?
2. United Arab Emirates up another +2.7% = confirmation of the aforementioned idea?
3. Canadian stocks +54bps yesterday, taking the TSX Index to the 13,940 line = setting up for a National Hockey League technical breakout - Go Leafs!
4. Mexico down 27bps yesterday, under performing US Equities by a landslide = best fundamental country short we have on our books (EWW is the Mexican etf), but gains on the short side are meant to be taken, and i covered 1/3 of my position on weakness...
5. Brazil down 29bps = 2nd down day in a row; worth calling out, given the continued squeeze we are seeing in the US
COMMODITIES is a market of commodities here, not a parochial commodity market!
1. CRB Commodity index underperformed US Equities yesterday, but chugged higher by another +29 basis points nevertheless = inflationary
2. Oil in a holding pattern here at the $88 line = attempting to consolidate for another liftoff?; inflationary at these levels, regardless...
3. Gold had a great day yesterday (great days are defined by days that we are long it, and it moves up!), moving up to $815/oz = inflationary... and i still see our Gold position (GLD) testing the $82 level
4. Wheat up another 54bps to $9.34/bushel, beating its chest like King Kong of the farm fields = global basic food consumption demand growth remains our most secular MCM Investment Theme, Globally...
5. Base Metals continue to act horribly relative to the CRB index; copper down 1%, lead -5%, nickel -4%, zinc -2% = proxy for Global Industrial Production (GIP) slowing in 2008? could very well happen; and i see Global Consumption overtaking it, which simply shifts inflation into different components of the CRB index (wheat/soy/corn, etc...)
RATES/CURRENCIES... upward and onward for US interest rates into Bernanke's decision...
1. 2yr rates up for the 5th day in a row to 3.16% (= 28 basis point move up from the lows); the 10yr yield is up alongside the 2's, trading 4.14% = Bernanke duck taped inside a box; no way he should cut more than 50bps; i still think he goes 25bps...
2. US$ 76.16 has flatlined; Bernanke's decision and rhetoric will give us the next path of least resistance ...
3. Yen 112 hitting a 1 month low = not surprising as global equities meltup higher; Yen has been one of the best proxies out there for risk taking (carry trading)
4. Chines Yuan rips to a new all time high at 7.37 = function of China printing a monster inflation number overnight (CPI for November was +6.9% y/y vs. the 6.5% number they printed in October) = confirming our secular demand thesis on basic food/needs consumption growth
Private Equity/M&A/Credit ... Waterboarding - 'Can you hear me now' consensus shortsellers??; the S&P Futures are up, again!
1. Bank of America writes off money market funds; Washington Mutual $1.6B in writedowns... = white numbing noise
2. MBIA rips higher yesterday, putting it +23.8% by my math since good ole wild Bill Ackman went to the presses on Dec5th with his "i do shorts too" pushing of his own book ... sorry Bill, "Ackmanism" just isn't what it used to be...
3. The FT saying that Xstrata is 'open to takeout talks' = buoying our continued bullish stance on Metals/Mining M&A ____________________________________________________________________________________________________________________________________________
MCM Trades/Fades
1. bought more Nevada Gold Casino (UWN) post their conf call yesterday... MCM Value cost basis is being realized here - this company is undergoing a full transformation... i thought new CEO, Bob Sturges, did a solid job on the conference call (15yrs at Carnival Cruise lines, running their riverboat casino opps); Sturges has moved his new team and the company to Houston, TX, and is making the moves that need to be made with this balance sheet (selling assets), and is improving the income statement by blocking/tackling; Joe Juliano took over as Chairman of the Board in Q2 of 2007 (an executive with 30yrs at Pepsi)... 12.9M shares, gives it a market cap of $19M, and pro forma debt $16M (post the Black Hawk casino sale for > 8x EBITDA, and the Horizon Casino purchase at < href="mailto:aisrael@cormark.com">aisrael@cormark.com ) at Cormark upgraded it ... Canadian brokerage firm going back to the well one too many times here (GIL is a Canadian Company); his model is so far off in 2008, that i have to do good by the guy and give you his email, so that you can thank him for the great cost basis; short high, cover low ...
4. bought back 1/3 of the Harley (HOG) position that i sold on Friday, just 3.5% lower... same thesis; buy low, sell high...
5. bought some Toll Brothers (TOL) ... lets start with reality: no one wants to admit attempting to buy these US Homebuilders for all of 2007 (trust me, i tried; bearishness out there gives you a daily rash), but Bearish Consensus is obvious now (18.9% of the float is held short); insiders stopped selling in July, and brothers Bob/Bruce Toll own 19.8M shares (13% of the company); Hedge funds are nowhere to be found on the top holders list - the MCM Double Edged Fear factor is credible if this one starts getting squeezed, never mind the potential for one of these Sovereign Funds to get long some US Housing; MFS and Fidelity remain the largest holders at 4.6% each... theoretically we can say there is MCM Value here at 1x Book Value - but who are we kidding; Bob Toll writes down his book every time he is mandated to release details on whats been nothing short of a 35 story belly flop from seeing his stock at $58 in 2005, to where were going to take a shot... The US Government will bail us out, in the end - no worries right?
6. shorted some Kohl's (KSS), using a $55.24 stop... the fine folks from Menomonee Falls, Wisconsin have had a nice +11.1% run since November 26th, when the US Retail group bottomed... KSS was one of my favorite shorts in October (when they were missing sales), and there is no reason why i shouldnt enjoy the ride again, now that their December sales dont look as good as November's did... expensive stock, if you use my numbers for 2008; solid US apparel hedge against our Gap (GPS) long position...
7. shorted some MasterCard (MA), for a very short term trade at $216.66... MA screened on my over-valued, over-owned, overly hyped, hedge fund concentrated, 52 week high list, just after i ate lunch; and although the bite i took out of it pales in comparison to some of the insider sales i've noted in their shares in recent weeks, i am happy to be in the game here; i have been waiting all year!...
8. covered 1/3 of my Mexico etf (EWW) on the open yesterday... no change in fundamental view; i just wanted to take down some short exposure in high beta positions; re-short more higher
9. covered all my Interparfums (IPAR)... i know, know - i said $15 target... but ask anyone who has ever worked with me; i just cant stay for the end of these parties ... solid +19.5% win for us here on the short side, in an up market - we'll take it!
10.covered all of my Tandy Leather (TLF) ... i know, i know - i said $13.11 target... but it closed down 11% yesterday at $13.20! close enough guys... another big win on the short side during an up market; +19.1% gain...
11. covered my Autonation (AN)... i had to do it for my son, Jack... both of our Lampert shorts were making us money in an up tape (SHLD and AN were down on the day yesterday; the SP500 was +0.75%), and my little guy needs diaper money... Autonation is going lower, but short gains are meant to be taken... will re-short on an up day...
12. selling my EBAY into Citigroup adding it to their "Focus List" this morning ... unless it gets through $34.69, i think we have plenty of room to trade around this core long position, and we've had a nice +8.5% run here, squeezing the guys who shorted it at the bottom... MCM Value thesis remains, at lower prices - we'll repurchase on a down day...
13. watching the reaction to this Goldman call to buy Burger King (BKC) and sell Starbucks (SBUX) very closely this morning ... BKC is a name we've been trading in/out of on the short side... and into 2008, you cant find a more natural contrarian pair than doing the opposite of this Goldman opinion... timing & sizing are, as always, the most critical decision points for me to consider before i get involved... _____________________________________________________________________________________________________________________________________________________________
MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07' Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07''
US$ 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'
_________________________________________________________________
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%
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%
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.
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