Dear MCM Friends,
First, let me thank you for taking the time out to read what I've had to say for the last 10 weeks. After almost 10 years on Wall Street, spending 10 weeks by myself, hammering out my sometimes nonsensical prose, had its moments of doubt! Your constructive feedback kept me going however, and for that I will be forever grateful.
In hindsight, it helps that we ended up on the right side of a major US stock market move, but making a short term "call" on the market is not a basis for a long term business model. Refining and improving my already proven investment process, however, is.
This week's US Market Performance:
Dow (1.51%); S&P500 (0.75%); Nasdaq (2.58%); Russell 2000 (2.35%)
For January 2008 to date:
Dow (4.96%); S&P500 (4.59%); Nasdaq (8.01%); Russell 2000 (8.01%)
The most important takeaway from my time away from the madness of the hedge fund industry's crowds is the confirmation in my gut of the fundamental belief that understanding company and economic cycles are processes, not points. Patience is required, and consensus building is not. Many Hedge Fund managers attempt to build businesses around who made the last "great call." Few understand how repeatable the investment process was behind that "call". As a result, they are often managing their businesses reactively, rather than proactively.
At this stage of my life, if my #1 ambition was to be compensated, I'd already have accepted one of the many generous hedge fund jobs that have been put on the table. Instead, I've decided to hang my hat on the convictions born out of my investment process - they beat any Wall Street offer you can give me.
To say that the game of levered long investing is coming to an end would be an understatement. With that new reality come tremendous market opportunities for those with entrepreneurial ideas that are creatively destructive.
I've decided to take this idea to the next level and invest my time and capital into building a real business. I intend to compete with mostly everything that's considered "acceptable investment advice" by current market participants. For the next 6-8 weeks, I'll be shifting into my top gear. I have my new team in place, and we're ready to grind.
Unfortunately, that means my focus will be moving to the operational side, and I won't be able to provide you with the same level of diligence that stands behind the convictions I've been willing to be held accountable for via MCM Trades, Trends, Themes, or Trades.
But, I'll be back!
Best of luck out there, and thanks again.
Keith McCullough
Saturday, January 12, 2008
Thursday, January 10, 2008
MCM Macro Intraday Fed Comment, 1/10/08... 'Ooolah-lah'
So Ben Bernanke is concerned and "prepared to act in a decisive and timely manner"... Ooolah-lah, isnt that a shocking revelation!
The Fed Funds Futures opened this morning with 76% odds that he not only cuts at the January meeting, but cuts by 50 basis points. The odds of Bernanke not cutting stand at zero %.
Where i was raised, when my Dad gave me zero odds - zero meant zero. And i'm not entirely sure why anyone considers anything that Bernanke is revealing today as anything other than historical reflections on what we should all consider reality by now.
I'm not entirely sure why CNBC had a "Bernanke Count Down" clock at the bottom of their screen today either. This is a $14 Trillion economy, not a Bowl Game.
History will not look back kindly on this Fed Centric Mania. In the moment, it is too emotionally charged to fundamentally respect.
Be careful chasing rallies. The CPI and PPI inflation reports loom next week, and Bernanke's academic integrity will be hostage to those releases.
KM
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.
The Fed Funds Futures opened this morning with 76% odds that he not only cuts at the January meeting, but cuts by 50 basis points. The odds of Bernanke not cutting stand at zero %.
Where i was raised, when my Dad gave me zero odds - zero meant zero. And i'm not entirely sure why anyone considers anything that Bernanke is revealing today as anything other than historical reflections on what we should all consider reality by now.
I'm not entirely sure why CNBC had a "Bernanke Count Down" clock at the bottom of their screen today either. This is a $14 Trillion economy, not a Bowl Game.
History will not look back kindly on this Fed Centric Mania. In the moment, it is too emotionally charged to fundamentally respect.
Be careful chasing rallies. The CPI and PPI inflation reports loom next week, and Bernanke's academic integrity will be hostage to those releases.
KM
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.
MCM Macro BonTon (BONT) update, 1/10/08... 'Bankruptcy Odds Increasing'
The company is effectively reporting that they did not have a Christmas. When your business model is to incur retail sales, thats bad, and generally just not good for investor morale.
Same store sales were down over -11%, with the BonTon stores themselves down -14.2%.
The company's prior "guidance" was to earn $1.50-1.80/share. Now they're revising that to $.50-.$80/share. This explains, partly, why the stock was down over -20% at one point intraday yesterday, as this news had to have leaked into the halls of the hedge fund community.
When "comping" down double digit sales declines, a levered retailer's income statement has comparable de-leverage characteristics to an Airline company. Generally, investors dont respect that fact, until they have to.
The beginning of another US Retail Bankruptcy cycle is under way. Buy WalMart, and short the rest.
KM
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.
Same store sales were down over -11%, with the BonTon stores themselves down -14.2%.
The company's prior "guidance" was to earn $1.50-1.80/share. Now they're revising that to $.50-.$80/share. This explains, partly, why the stock was down over -20% at one point intraday yesterday, as this news had to have leaked into the halls of the hedge fund community.
When "comping" down double digit sales declines, a levered retailer's income statement has comparable de-leverage characteristics to an Airline company. Generally, investors dont respect that fact, until they have to.
The beginning of another US Retail Bankruptcy cycle is under way. Buy WalMart, and short the rest.
KM
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.
Wednesday, January 9, 2008
MCM Macro Intraday Trades 1/9/08... 'Just Shorts'
Stocks Discussed: EWS, TM, and TCO...
MCM Trades/Fades
1. Shorting Singapore's ETF (EWS) into the close, $13.40... MCM Trend moving to negative on Singapore. Note to follow...
2. Shorting Toyota (TM) into the close, $105.20... Note to follow.
3. Re-Shorting Taubman Centers (TCO) into the close $$45.11... same thesis; stock is up +2.5% today, giving us another great entry point.
KM
___________________________________________
MCM Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -Nov07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -Nov07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -Nov07''US$ Bottoming is a Process, not a Point' -Nov07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec07'
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec07'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec07'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec07'
'Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec07'
'Long Term Macro Cycle tops are processes, not points' -Jan08'
___________________________________________________________________
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.
MCM Trades/Fades
1. Shorting Singapore's ETF (EWS) into the close, $13.40... MCM Trend moving to negative on Singapore. Note to follow...
2. Shorting Toyota (TM) into the close, $105.20... Note to follow.
3. Re-Shorting Taubman Centers (TCO) into the close $$45.11... same thesis; stock is up +2.5% today, giving us another great entry point.
KM
___________________________________________
MCM Themes
Fed Centric/Fed Cut bull case is the Tree; Access to Credit/Capital the Forest... -Nov07'
Rebalancing to the Left; look for Socialism to regain her footing, Globally, in 2008... -Nov07'
Bonds, Banks, and Bailouts; Blue Magic is bad, in the end... -Nov07''US$ Bottoming is a Process, not a Point' -Nov07'
'YouTubing America' - Transparency/Accountability will transform Washington to Wall Street -Dec07'
'Paulson & the Fed Centrists want you to call 1-888-995-HOPE' -Dec07'
'The Double Edged Fear Sword: Fear is now the dominating market factor, not Credit - Fear for Fed Centric Bulls & Consensus Bears alike'-Dec07'
'Global Basic Food Consumption Growth will takeover from the consensus "Its Global this time" Industrial Production Growth story in 2008'-Dec07'
'Litigations & Redemptions' - The Tide has rolled out on the Levered Long Community'-Dec07'
'Long Term Macro Cycle tops are processes, not points' -Jan08'
___________________________________________________________________
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.
how does stopping the price increase slow anything? does this make sense to you?
_________________
Using history as my guide in answering your question, the answer is ultimately no - price controls do not slow anything; rather, they have a propensity to compound the problem. This is a form of socialism/communism, not capitalism.
Economic History buffs will remember that when Nixon appointed Arthur Burns Fed Chairman in 1970, wage and price controls had seeped into the political dialogue... i think it was simply the populist answer to stagflation. And there are plenty of analogies to be made to where the political dialogue is moving here in 2008.
In the fall of 1971, Nixon moved ahead, making what he would later reflect on as his worst policy decision of his presidency (apart from Watergate), and implemented price controls...
By 1974, the US was staring at an +11% inflation rate, raging unemployment prospects, and the worst recession since the 30's.
This morning, Oil is testing $100/barrel, Gold $900/oz, and corn $5/bushel.
Sherlock Holmes would nail this one:
"There is nothing more deceptive, than an obvious fact"
Keith
_________________
Using history as my guide in answering your question, the answer is ultimately no - price controls do not slow anything; rather, they have a propensity to compound the problem. This is a form of socialism/communism, not capitalism.
Economic History buffs will remember that when Nixon appointed Arthur Burns Fed Chairman in 1970, wage and price controls had seeped into the political dialogue... i think it was simply the populist answer to stagflation. And there are plenty of analogies to be made to where the political dialogue is moving here in 2008.
In the fall of 1971, Nixon moved ahead, making what he would later reflect on as his worst policy decision of his presidency (apart from Watergate), and implemented price controls...
By 1974, the US was staring at an +11% inflation rate, raging unemployment prospects, and the worst recession since the 30's.
This morning, Oil is testing $100/barrel, Gold $900/oz, and corn $5/bushel.
Sherlock Holmes would nail this one:
"There is nothing more deceptive, than an obvious fact"
Keith
Inflation continues to accelerate, and China's answer = Price Controls?
China to Cap Energy, Utility Prices to Cool Inflation
By Li Yanping
Jan. 9 (Bloomberg) -- China will freeze price increases of oil products, natural gas and electricity in the ``near term,'' Premier Wen Jiabao said, as the government tries to curb inflation at an 11-year high.
The government will cap costs of daily goods when necessary, stop increases of fees for public transportation and school tuition and step up a crackdown on price manipulation, Wen said at a State Council meeting today, according to a statement posted on the government's Web site.
``Prices of crude oil, grains and other primary products are still rising on the international market, and China faces relatively large pressures of further price increases,'' Wen said, without specifying how long the controls will last.
Inflation in the world's fastest-growing major economy surged to 6.9 percent in November, the fastest since 1996, and was named by policy makers as one of the two major economic risks for 2008, along with overheating. The central bank pledged a ``tight'' monetary policy this year after six interest-rate increases in 2007 failed to rein in price surges.
``China is facing greater risks of import-induced inflation in 2008 even after factors attributed to last year's price rise, such as pork and grain shortages, dissipate,'' said Zhu Baoliang, chief economist at the State Information Center in Beijing. Crude oil topped $100 a barrel for the first time last week.
By Li Yanping
Jan. 9 (Bloomberg) -- China will freeze price increases of oil products, natural gas and electricity in the ``near term,'' Premier Wen Jiabao said, as the government tries to curb inflation at an 11-year high.
The government will cap costs of daily goods when necessary, stop increases of fees for public transportation and school tuition and step up a crackdown on price manipulation, Wen said at a State Council meeting today, according to a statement posted on the government's Web site.
``Prices of crude oil, grains and other primary products are still rising on the international market, and China faces relatively large pressures of further price increases,'' Wen said, without specifying how long the controls will last.
Inflation in the world's fastest-growing major economy surged to 6.9 percent in November, the fastest since 1996, and was named by policy makers as one of the two major economic risks for 2008, along with overheating. The central bank pledged a ``tight'' monetary policy this year after six interest-rate increases in 2007 failed to rein in price surges.
``China is facing greater risks of import-induced inflation in 2008 even after factors attributed to last year's price rise, such as pork and grain shortages, dissipate,'' said Zhu Baoliang, chief economist at the State Information Center in Beijing. Crude oil topped $100 a barrel for the first time last week.
Tuesday, January 8, 2008
MCM Macro Intraday Trades, 1/8/08... 'Just Stocks'
Stocks Discussed: HNZ, SONC, WMT, AXP, and CL...
Keep trading aggressively, and from a position of mental strength - this market doesnt look like it owes anyone anything.
MCM Trades/Fades
1. shorted Heinz (HNZ) yesterday, $46.18...
-Similar to the recent short calls I've made on McDonald's (MCD) and Nike (NKE), Heinz (HNZ) is a company that I've followed very closely since we bought it in 2003 (in the low $30's). At that time, everyone hated it, and it was the cheapest big cap global food asset you could buy
-Fast forward 5 years and now we have an overowned and overvalued stock ($14.7B in mkt cap, $19.4B EV, and trading at 11x LTM cash flow) on what look to be peaking sales growth numbers, that has found the sell side's love (2 Strong Buys, 4 Buys, No sells).
-Yes, their performance has been great since Nelson Peltz's Trian Fund took their 6% stake, but unfortunately all great runs eventually come to an end.
-HNZ's recently reported FYQ2 was stellar; printing 13% sales growth and beating the Street's earnings estimate by 4 cents ... the devil is in the details however, and that's that 3 of the 4 cents in their beat came from a shockingly low tax rate, 5 of the 13% sales growth came from currency, and gross margins were down 100bps y/y.
-So what's changed since the quarter? A) the US$ bottomed and B) commodities have risen.
-Why Now? - The timing here is critical to appreciate as last year around this time HNZ's ornery CEO Bill Johnson had a Nelson Peltz fire hose chasing him down into his board room. As you remember, this is when Wall Street's fascination with "Activism" was at an all time high, and Trian had recently filed their ownership. Suffice it to say, Johnson was going to print the biggest "I told you I'm not the problem here" numbers possible into his FY end board meeting - and he did. In hedge fund speak, we call this a tough year over year comparison, one that the company will finally have to report against.
-The Bulls will say three things 1) Consumer Staple safety stock, 2) Peltz, and 3) a play on the "its Global this time" narrative.
-The MCM bear says 1) Consumer Staple stocks are sensitive to the economic cycle slowing (pull up all of the charts from 2002), 2) Peltz owns 6%, and should book the gain before his Mutual Fund Followers flinch (Cap Re owns almost 14%!, State Street is close to 6%), and 3) yes 54% of HNZ sales come from outside the US, but only 13% come from where the juice is (Emerging Markets). If you go back in the HNZ income statement to the years that I owned it, the only reason I was able to buy it on the cheap was because the UK "blew up", and as good as Trian's research is, they are not going to trump the economic slowdown that's underway in Europe right now.
-On HNZ's last conference call Johnson guided to what has to be the all time peak for this enterprise in terms of sales growth at 9-10% for this FY. As our friend Shakespeare said: "Expectations are the root of all heartache."
-Short interest is only 1.6% of the float, so we already know few people agree with us.
2. shorted Sonic Corp (SONC) yesterday, $21.99...
-Straightforward MCM Momentum Modeling short with considerable earnings risk to consensus estimates.
-SONC is one of the most expensive stocks in a group (US Restaurants) that gets cheaper by the day. This valuation is a massive liability for the mutual fund community who continues to support the stock (mkt cap $1.3B, EV $2.1B; trading at 11x LMT cash flow).
-The opportunity presented itself in the last few days as the stock was getting squeezed higher in the face of what was an ostensibly positive surprise in the company's earnings reports ( i.e. they didn't guide down). With almost 13% of the float held short by hedge funds who have the patience of puppies, it pays to pick your trading spots in this name.
- The company just closed up another successful fiscal year, and the good news for us is that their fiscal year ended in August. Thus, their full year guidance is based on a US Consumer spending environment that has changed, and they'll be lapping very difficult margin comparisons with limited room for a sales miss.
-For this upcoming quarter, the sell side has their operating margins modeled flat y/y, and that's an aggressive assumption that has been driven by management's outlook, not inflationary reality.
-To top it off, insiders have been selling, but that will be nothing compared to the tidal wave of selling to come if you see Fidelity or T.Rowe find reason to flinch (they own 13.7% and 7.6% of the stock respectively).
3. sold another 1/3 of my WalMart (WMT) into todays strength, $46.98... nothing fundamental or company related; more a market call than anything else. I downgraded the MCM Trade on the market to negative, and wanted to reduce gross long exposure.
4. covering all of my American Express (AXP) here into the close, $48.21... gains on the short side are meant to be taken, and this stock is miserably under performing the US market today, trading down another - 2.5%. Short thesis remains; re-short it on up days.
5. shorted Colgate (CL) today, $81.48... Note to follow...
Thanks for the continued support,
KM
_________________________________________________________
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%
RSX (bought 49.32, sold 51.36) = +4.0%
HOG (bought 48.20, sold 46.55 ) = - 3.4%
KGC (bought 17.33, sold 17.74) = +2.4%
GLD (bought 78.60, sold 82.69) = +5.2%
TIP (bought 104.68, sold 106.64) = +1.9%
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%
KSS (short 52.64, cover 45.37) = +13.8%
TLF (short 3.25 , cover 3.05) = +6.2%
TGT (short 55.23, cover 49.99) = +9.5%
RIMM (short 103.53, cover 116.98) = - 12.99%
HAS (short 27.15, cover 25.80) = +4.97%
BONT (short 12.26, cover 9.49 ) = +22.6%
WYN (short 25.01, cover 23.31) = +6.8%
NKE (short 67.01 , cover 64.18) = +4.2%
ATML (short 4.59, cover 4.28) = +6.8%
EWY (short 66.06, cover 61.70) = +6.6%
CAT (short 71.49, cover 70.23) = +1.8%
AN (short 15.49, cover 14.67) = +5.3%
TCO (short 52.73, cover 47.86) = +9.2%
SHLD (short 106.09, cover 97.79) = +7.8%
AXP (short 52.65, cover 48.21) = +8.4%
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.
Keep trading aggressively, and from a position of mental strength - this market doesnt look like it owes anyone anything.
MCM Trades/Fades
1. shorted Heinz (HNZ) yesterday, $46.18...
-Similar to the recent short calls I've made on McDonald's (MCD) and Nike (NKE), Heinz (HNZ) is a company that I've followed very closely since we bought it in 2003 (in the low $30's). At that time, everyone hated it, and it was the cheapest big cap global food asset you could buy
-Fast forward 5 years and now we have an overowned and overvalued stock ($14.7B in mkt cap, $19.4B EV, and trading at 11x LTM cash flow) on what look to be peaking sales growth numbers, that has found the sell side's love (2 Strong Buys, 4 Buys, No sells).
-Yes, their performance has been great since Nelson Peltz's Trian Fund took their 6% stake, but unfortunately all great runs eventually come to an end.
-HNZ's recently reported FYQ2 was stellar; printing 13% sales growth and beating the Street's earnings estimate by 4 cents ... the devil is in the details however, and that's that 3 of the 4 cents in their beat came from a shockingly low tax rate, 5 of the 13% sales growth came from currency, and gross margins were down 100bps y/y.
-So what's changed since the quarter? A) the US$ bottomed and B) commodities have risen.
-Why Now? - The timing here is critical to appreciate as last year around this time HNZ's ornery CEO Bill Johnson had a Nelson Peltz fire hose chasing him down into his board room. As you remember, this is when Wall Street's fascination with "Activism" was at an all time high, and Trian had recently filed their ownership. Suffice it to say, Johnson was going to print the biggest "I told you I'm not the problem here" numbers possible into his FY end board meeting - and he did. In hedge fund speak, we call this a tough year over year comparison, one that the company will finally have to report against.
-The Bulls will say three things 1) Consumer Staple safety stock, 2) Peltz, and 3) a play on the "its Global this time" narrative.
-The MCM bear says 1) Consumer Staple stocks are sensitive to the economic cycle slowing (pull up all of the charts from 2002), 2) Peltz owns 6%, and should book the gain before his Mutual Fund Followers flinch (Cap Re owns almost 14%!, State Street is close to 6%), and 3) yes 54% of HNZ sales come from outside the US, but only 13% come from where the juice is (Emerging Markets). If you go back in the HNZ income statement to the years that I owned it, the only reason I was able to buy it on the cheap was because the UK "blew up", and as good as Trian's research is, they are not going to trump the economic slowdown that's underway in Europe right now.
-On HNZ's last conference call Johnson guided to what has to be the all time peak for this enterprise in terms of sales growth at 9-10% for this FY. As our friend Shakespeare said: "Expectations are the root of all heartache."
-Short interest is only 1.6% of the float, so we already know few people agree with us.
2. shorted Sonic Corp (SONC) yesterday, $21.99...
-Straightforward MCM Momentum Modeling short with considerable earnings risk to consensus estimates.
-SONC is one of the most expensive stocks in a group (US Restaurants) that gets cheaper by the day. This valuation is a massive liability for the mutual fund community who continues to support the stock (mkt cap $1.3B, EV $2.1B; trading at 11x LMT cash flow).
-The opportunity presented itself in the last few days as the stock was getting squeezed higher in the face of what was an ostensibly positive surprise in the company's earnings reports ( i.e. they didn't guide down). With almost 13% of the float held short by hedge funds who have the patience of puppies, it pays to pick your trading spots in this name.
- The company just closed up another successful fiscal year, and the good news for us is that their fiscal year ended in August. Thus, their full year guidance is based on a US Consumer spending environment that has changed, and they'll be lapping very difficult margin comparisons with limited room for a sales miss.
-For this upcoming quarter, the sell side has their operating margins modeled flat y/y, and that's an aggressive assumption that has been driven by management's outlook, not inflationary reality.
-To top it off, insiders have been selling, but that will be nothing compared to the tidal wave of selling to come if you see Fidelity or T.Rowe find reason to flinch (they own 13.7% and 7.6% of the stock respectively).
3. sold another 1/3 of my WalMart (WMT) into todays strength, $46.98... nothing fundamental or company related; more a market call than anything else. I downgraded the MCM Trade on the market to negative, and wanted to reduce gross long exposure.
4. covering all of my American Express (AXP) here into the close, $48.21... gains on the short side are meant to be taken, and this stock is miserably under performing the US market today, trading down another - 2.5%. Short thesis remains; re-short it on up days.
5. shorted Colgate (CL) today, $81.48... Note to follow...
Thanks for the continued support,
KM
_________________________________________________________
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%
RSX (bought 49.32, sold 51.36) = +4.0%
HOG (bought 48.20, sold 46.55 ) = - 3.4%
KGC (bought 17.33, sold 17.74) = +2.4%
GLD (bought 78.60, sold 82.69) = +5.2%
TIP (bought 104.68, sold 106.64) = +1.9%
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%
KSS (short 52.64, cover 45.37) = +13.8%
TLF (short 3.25 , cover 3.05) = +6.2%
TGT (short 55.23, cover 49.99) = +9.5%
RIMM (short 103.53, cover 116.98) = - 12.99%
HAS (short 27.15, cover 25.80) = +4.97%
BONT (short 12.26, cover 9.49 ) = +22.6%
WYN (short 25.01, cover 23.31) = +6.8%
NKE (short 67.01 , cover 64.18) = +4.2%
ATML (short 4.59, cover 4.28) = +6.8%
EWY (short 66.06, cover 61.70) = +6.6%
CAT (short 71.49, cover 70.23) = +1.8%
AN (short 15.49, cover 14.67) = +5.3%
TCO (short 52.73, cover 47.86) = +9.2%
SHLD (short 106.09, cover 97.79) = +7.8%
AXP (short 52.65, cover 48.21) = +8.4%
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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