Differentiating Perception vs. Reality... always a tough one for market speculators to get right... especially when you are a Fed Centrist speculator who loses a leg in what has become the US market's daily butt kicking contest...
That proverbial leg was "Reality #2" that i highlighted in yesterday's morning missive - the Fed Centrists losing the Bernanke put leg until January 30th, the next Fed bailout date...
Yes, in the meantime, throughout the next 48 days, i am sure that the US Government will lead an effort to assuage fundamental market fears, and shouldnt we free market capitalists take great comfort in their Populist efforts? Its also "Global This Time" according to the US Market Bulls (or at least thats how i remember the narrative fallacy of October 2007 going), so we should look forward to the fruits that the leadership provided by President Bush and Secretary Paulson effort's will undoubtedly provide for those Sovereign Governments of the world looking to give money back to their people. As a matter of fact, i just read this on the overseas wires:
JERUSALEM (Reuters) - An Israeli judge has ordered the country's prison authority to pay an inmate over $1,000 in compensation after he complained of having to share a cell with cockroaches
Now if that headline isnt an anecdote for how the average blue collar American feels right now when he looks at his money market account or mortgage, i dont know what is...
I am downgrading the MCM Trade and the MCM Trend to negative.
Good luck out there today,
KM
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ASIA had its biggest one day drop in 3 weeks... do you hear me now?" = Fed Centrist Fear + Stagflation?
1. Chinese equities tanked on their domestic economic news (most locals who trade these things dont have a TV, and cant pronounce the word "Google", so they dont do the Fed Centrist thing), closing down 2.7%, post what i thought was a real callout in the Chinese Industrial Production # slowing to a year to date low of +17.3% = stagflation is defined by growth slowing, and inflation rising - we had both of those pieces of Chinese economic data this week, and now the Shanghai composite index is down (-18.6%) since the locals started selling on October 16th, front running the "Its Global Chindia this time" Bulls in the US, big time!
2. Hong Kong down 2.7%, putting the Hang Sang at 27,744 = still long EWH (HK etf) against short Korea (EWY); i'm using a 27,191 stop in the Hang Seng now; the facts are changing in China, so i am...
3. Japan slammed for a 2.5% loss; banks led decliners, and they should have; this economy is in real trouble again (stagflation combined with a rising yen is an economic bone crusher) = MCM Trend in Japan remains negative, despite valuation; the only technical support level for the Nikkei is 4.7% lower from here (ie where it bottomed last on November 21st)...
4. India down 1.3% after hitting a new ytd high yesterday = positive divergence, outperforming the region ...
EUROPE weakness is broadening, deepening ... Fed Centrist Fear + Stagflation?
1. FTSE down 1.6% so far in day 3 of get me out selling = concerning, but not technically broken, yet... FTSE needs to crack the 6346 line for me to get more aggressive with European shorts...
2. France's CAC down 1.9%, and we have another inflationary data point printed as reality here this morning with French CPI (November) accelerating to +2.4% vs 2.2% (E) = stagflation
3. Belgian stocks down 1.5% after their ECB Governing member Quaden came out with comments that he is "Seriously Concerned about inflation" = objectivity from the ECB relative to the US Fed Centrists remains, and so does the threat of stagflation in legacy European economies...
4. Russia, down 85bps, outperforming the region, again = MCM Trend remains positive on Putin and Medvedev; $94/oil helps buoey the case this morning ...
OTHER MCM Geopolitical/Country callouts... Saudi stocks called this resurgent crude price, afterall...
1. Saudi stocks continue higher, up another 2%... and now the river card is on the table = crude $94
2. Kuwait +10bps, Bahrain -18bps, Oman +8bps = MCM Trend is positive on the Middle East, relatively and absolutely; this global out performance since October is impressive
3. Aussi Equities outperformed Asia, closing down only 27bps = commodity country Australia is... and commodities raged higher yesterday... = inflation
4. Mexico was closed yesterday = making another lower high on December 7th, a negative technical picture is now developing alongside our negative fundamental stance...
5. Brazil stopped its 3 day skid, closing up 36bps, golf clap = remains the most bullish global equity tape, and reflects our 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; long live the kings of this brave new world's food/energy supplies! As my good friend Dillon (golf caddy from South America) likes to say, "Beeeg Drive"!
1. CRB Commodity index +2.3% to 354 outperforming pretty any liquid asset class you can show me = glaringly inflationary; this is turning into a redo of the 1970's... this is why i am long Gold (GLD) and Treasury Protected Inflation (TIP)... i'll keep harping on this every day, until the facts change
2. Oil $94, putting it +6.1% for the week to date = inflationary
3. Gold strong at $815, and we get a very bullish supply disruption overnight with Lihir (Australia's #2 producer), cutting production #'s = inflationary
4. Corn had another solid day in the fields yesterday, moving to new highs of $4.34/bushel; wheat ripped anyone who shorted yesterdays selloff, closing up "Beeeg" at $9.48/bushel, and soy $11.54, remains at 34 year highs = "do you hear me now" inflationary!... Deutsche Bank's Strategist Joe Lavorgna continues to dismiss food pricing as being relevant - thats not only a Fed Centrist view, but a man paid handsomely living in Manhattan Centrist view, who will probably change his tune post this mornings PPI report...
5. Base Metals foreshadowed this Chinese Industrial Productions slowing, didnt they?; thats why the simpleton markets guys out there call him Dr Copper folks; despite a big supply disruption via earthquake in Chile, copper was down for the 4th day in a row!; nickel closed down another 1.5% = remains what we've been beating on and thats simply that base metals were providing us a proxy for Global Industrial Production (GIP) slowing in 2008...
RATES/CURRENCIES... this one was easy yesterday, and should have had you cutting gross long exposure to Equities...
1. 2yr rates moved higher again to 3.14% (thats a massive +30 basis point move up since everyone was freaking out about a US recession on December 5th); 10 yr rates are back up to 4.10%, threatening that "inversion" call that Kudlow and Company continue to make (10yr vs Fed Funds rate)...
2. US$ 76.25, has indeed flatlined... = golf clap for our call 6 weeks ago here
3. Chines Yuan still not getting the press it needs, but dont worry, the masses will figure this out as they scurry to figure out Asia's weakness, retrospectively = 7.36 yuan is a new all time high, and yes, inflationary ...
Private Equity/M&A/Credit ... Citigroup -10% now since the Pandit Bandits slapped it all over your Bloomberg screens 48 hrs ago... why are hedge fund guys getting the keys to the castle?
1. Red Kite (commodities) hedge fund just put up a down -22% month (bad copper trade) = please dont tell me on Monday that these guys are the new CEO's of Bear Stearns...
2. Carl Icahn, was the "Activist" in Biogen Idec (BIIB, down 22% premkt) = Activism/Ackmanism is having some serious issues all of a sudden... are they really the "smart" money, or just the most levered?
3. "Mezzanine" Funds to replace Activists? = 32 of these funds are in motion raising money right now; the leverage love affair continues...
4. article int WSJ this morning titled "SIV Superfund losing momentum" = gee, thanks ... maybe my little Jack will get some underwears with an SIV superhero decal
5. Bank of America downgrading Washington Mutual this morning = WM was down another 8% yesterday...
6. Investec saying Anglo could pay > $100B for Xstrata = M&A/Mining consolidation remains an important inflationary trend, longer term
7. Lampert and Pandit are now long Citigroup... SHLD hit a new low yesterday, and i have been told to get off his case, so i wont put in print the price ESL paid for Citigroup earlier this yr
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MCM Trades/Fades
1. bought back 1/3 of that WalMart (WMT) that we sold earlier in the week... buy low, sell high - no need to recap the long thesis for you again in full, this is straighforward, and one of the lowest risk big cap global ways to invest alongside MCM's Theme of 'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec08'...
2. buying a trading position in Costco (COST)... this business gets better as US employment weakens, and US Savings rates climb... i'm by no means early on this one, but thats ok as long as this chart stays this pretty and it maintains the style factors i am looking for (ie, on US market meltdown days, we want to own stocks that the Lampert/Ackman/Concentrated community doesnt...and we want to be long liquidity, short illiquidity)... the guys who are short this on valuation have had a headache all year long, and if US food inflation continues to rip higher, Costco has implied leverage to same store sales growth...
3. bought a starter position in Hershey (HSY)... under $39/share, MCM Value cost basis striking here in my model... yes, i know; they have been blowing up all year and people hate this company = perfect candidate to buy into year end tax loss selling ... outward bound CEO Rick Lenny missed 8 quarters before he finally found ways to say it was the Hershey Trusts fault ... 3.1% dividend yield pays us to wait this one out; margins are setup to recover within 6-9months, and no one is allowed to admit they owned it in 2007...
4. bought a starter position in CBS Corp (CBS)... under $26/share, another beaten up MCM Value pick for 2008; adds cheap optionality to our simpleton thesis that the 2008 US election will be generational in terms of awareness and voter awareness (part of our New York Times (NYT) long thesis as well)... 24M shares held short, trading for 7.6x trailing EBITDA, with a 3.8% dividend yield, and when Private Equity gets a lifeline, this name goes right to the top of the screens, flashing green...
5. shorted Einstein Noah (BAGL) yesterday... yes, they sell the Bagels, and thats an ominous ticker when i find one this obvious on the short side... Morgan Stanley raised money for them right before the deal calendar slowed like a pair of skates in a pool of cream cheese... it goes without saying that with wheat being their #1 input cost (they barely hedge), that they dont have any upside left in their margin tank... management claims that they can keep raising prices, but unless you think people are dumb enough to overpay for a bagel, you're best to side with my topline estimate for 2008 instead of Cowen's analyst's (he's the bull)... insider sale hit the tape on December 7th, nice out for him... shocks me that short interest here is only 1.3% of the float; to steal Larry Kudlow's line, "Shock & Awe" actually...
6. shorting Burger King (BKC) all day long > $28... i am not sure if people are confusing Goldman's research analysts newfound bullishness (they took them public; big private equity cashout by Bain/Goldman, etc) with this being a market share loser to McDonalds or a winner or sort of both, or what? but you know i am a stickler for these 52 week highs (thats where we shorted MCD, fortuitously), and being offered the highest price ever in this ridiculously overvalued name is more tantalizing than pretty near anything you can offer to feed TayTay (college frat guy we knew) from this place at 3am... checkout the insider sale by Goldman's Private Equity Offshore Fund at $25; thats "my price target"... their manufactured earnings growth (interest expense has been a huge driver of the "growth") is set to slow in the next two quarters; the good news in this name is yesterdays...
7. re-shorted Research in Motion (RIMM) yesterday... i know, i had the itchy foot in this one last time, and covered too early... but this thing is starting to look ripe to finally crack; and if my MCM Momentum modelling thesis comes to fruition, it will ... Q3 earnings are due out on December 20th, and Q3 of last yr is where the topline really ripped in this model; the rest is history in terms of how the Street fell in love with this one from there... a large % of Wall St Momentum marriages end in divorce...
8. covered my McDonalds (MCD) yesterday... keep your eyes on your fries folks... when the US market cracked, so did the momentum players in this overvalued situation, so we took the paycheck... replaced it with BKC short; re-short higher... short gains are meant to be taken; solid 3.4% 24hr gain
9. covered my Dollar Tree (DLTR) yesterday, when the US market rolled over at 3pm... continues to be a great name to trade around with a short bias; short high, cover low... we'll be back!
10. covered my MasterCard (MA) yesterday, when the US momentum investors faded, at 3pm... this one was just like MCD, a 52week high that was easy to pick off ... rinse and repeat, +3.1% win
11. stay long New York Times (NYT), they're paying you their dividend this morning... reminder 5.5% yield saves you a lot of headaches when the S&P futures are whipping around like pac man pre mkt... dont over pay; i like my costs basis here of $16.11, and will buy more under $16.56
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MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ Bottoming is a Process, not a Point' -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'
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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%
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%
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.
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