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


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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%
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%

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