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
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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
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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), $104.37... as sure as the sun has risen in the East, since March this has been the contrarian investment of the year... right now, there isnt a name i get more questions on from my community of contacts... there is no tax efficiency in "holding" short gains for the long term - shorts are meant to be traded, and gains meant to be taken... hoping to reshort it again on strength
8. covered my Burger king (BKC) yesterday... it gapped down on the open alongside the US market, and i opted to book the gain... short thesis has a duration that plays out in 2008, and by the looks of it, the current holders are going to make sure it closes out 2007 the way they want it to... sometimes the best thing to do as a short seller, is do nothing...
9. covered my Mexican ETF (EWW) yesterday into the closing lows, down 4% day... short high, cover low... simple model for those who want to get paid in the land of reality vs. that of the theoretical... i'll re-short it on an up day; fundamental thesis remains
10. covered my General Electric (GE) yesterday on the close 36.48... short gains are meant to be taken, and "to be honest with you", i have no idea why this stock was so easy to establish such a good cost basis in on the analyst day where Immelt issued his outlook ... easy name to trade aggressively with a short bias, in the immediate term...
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MCM Trends/Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -November07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -November 07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -November 07'
'US$ 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'-Dec08'
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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%
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.
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