Quote Of The Week: Prince Alwaleed

“Full and complete support to Citi management, led by Vikram Pandit…”
-Prince Alwaleed

We have a leadership crisis in the US Financial System. The longer it takes to see it for what it is, the more protracted this bear market is going to be. Seeing the Street go back to the old well gives me a headache.

I completely disagree with the Saudi Prince’s current view of Vikram Pandit. The “New Reality” of seeing our US Financial System recover in 2009 and beyond is going to be predicated on winning back what the old boy network of Wall Street lost – credibility. Vikram Pandit’s senior management team is simply a Morgan Stanley redo of all that is imploding today. This reactive management team is no different than that which Hank Paulson led at Goldman or Dick Fuld oversaw at Lehman. Their names are different; their process is the same.

Sound judgment, accountability, and trust are at the heart of my definition of leadership. Take those coordinates on your moral compass and add a proactive risk management approach and you have yourself a winner to “completely support.”

There is not a Great Depression in this country, but there should be in the board rooms of ‘Investment Banking Inc.’ Franklin D. Roosevelt called the actual Depression “a result of the lack of honor of men in high places.” Think about that.

To believe in the illusion of the yellow brick road that the Prince painted this week requires a serious dose of groupthink and then an injection of narrative fallacy. It’s amazing what a five day rally in the stock market can do to the mind of the financial media. Don’t invest alongside their momentum chasing. Once they are done squeezing the shorts in Citigroup’s stock, I will be considering a short sale of this ex-Morgan Stanley management team.

The Pandit “Bandit” not only plugged Citigroup shareholders with an $800M sale of his hedge fund, Old Lane, but he then proceeded to make his partner at Old Lane, John Havens, head of Citigroup’s investment banking unit! I couldn’t make this up if I tried. These two didn’t know how to manage the risk in their own hedge fund, and now Alwaleed is signing off with “full and complete support” in their leading one of the world’s largest banks? Wow… do we ever live in interesting times.

After seeing oil prices drop 64% from their peak, and Citigroup’s shares lose over 80% of their value, you don’t need a major in economics to understand how self perpetuating Alwaleed’s financial motive is here. After Pandit saw the $8.4M in stock he bought get cut in half in less than 2 weeks, you don’t need to wonder about his either.

In the immediate term, Citigroup’s stock still has upside to $10.27/share. That’s 11% higher than where Pandit and Havens bought insider stock in mid-November. Notwithstanding that they made these purchases in front of one of the largest corporate bailout’s in the history of America, investors are best served watching what these pirates do versus what they say.

Somali pirates got the better of some of the Saudi Prince’s oil. Don’t let these ‘Investment Banking Inc.’ pirates of a broken Wall Street past get the best of you.

Keith R. McCullough
CEO / Chief Investment Officer

Chart Of The Week: "The Wreck Of The Edmund Fitzgerald"

"The legend lives on from the Chippewa on down
Of the big lake they call Gitche Gumee
The lake, it is said, never gives up her dead
When the skies of November turn gloomy."

I have a family home up on "The Lake" (Lake Superior). Gordon Lightfoot's lyrics should have been played for levered long US “Activist” Equity investors, where November did indeed "turn gloomy." That said, don’t let your broker or PM tell you “T’was the witch of November” who stole all performance. For the month, China and Gold closed +8.8% and +12.7%, respectively. Staying focused on your losers and averaging down on the homeland isn't going to differentiate returns in this increasingly interconnected global market of factors. Keep it global and keep moving!

We remain long both China and Gold via the FXI and GLD exchange traded funds. We are short the S&P500 via the SPY.


KEITH - WEN is the best looking fast food stock on the long side… however…..

HOWARD – WEN - The however is due to management proving that the merger makes sense and that the margin opportunities at the Wendy’s brand are real. In 3Q05 The Wendy’s brand posted strong same-stores sales in 3Q08 on the back of the $0.99 menu. It’s a start!

KEITH - YUM starting to shape up long... has a lot of work to do, but looks better than it has in a while

HOWARD – YUM – We need to get past the 4Q08 – the quarter is not looking good. YUM’s U.S. business is in a secular decline and China is slowing versus a very difficult comparison last year.

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A smoldering stimulant!

I know there are a number of factors influencing how people spend money in today’s economic environment, but current trend in gas prices will have a positive influence on consumer sentiment. As you can see from the national gas price map, the regions of the country with the lowest gas prices are those hardest hit by the current economic environment.

US Market Performance: Week Ended 11/28/08

Index Performance:

The 5 Day Squeeze:
DJ +16.9%, SP500 +19.1%, Nasdaq +17.0%, Russell2000 +22.8%

November 08A:
DJ (5.3%), SP500 (7.5%), Nasdaq (10.8%), Russell2000 (12.0%)

Q408’ To Date:
DJ (18.6%), SP500 (23.2%), Nasdaq (26.6%), Russell2000 (30.4%)

2008 YTD:
DJ (33.4%), SP500 (39.0%), Nasdaq (42.1%), Russell2000 (38.2%)


It’s rare that insider buying is not a good sign. BYD insiders have been buying which I do think is a good signal to investors. BYD management has bought and sold well and the two key individuals there are buying (BB&BB), Bill Boyd and Bob Boughner.

The ASCA situation is a bit different. It’s no secret that that Ray Nielsen and the Craig Nielsen Trust would probably like to sell the company. This has been the investment thesis for quite awhile. Unless management wants to spend their retirement years in jail, there probably isn’t a deal in the works over the near term. Now that’s a signal, although probably not the one investors were looking for.

Next, let’s take a look at how management has done historically on its own stock. The results there are certainly not as good as BYD. The chart below shows the recent buying and it’s pretty obvious that management should stick to running casinos, which they actually do very well.

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