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The running category is going to be a share war in 2009. UA will emerge a winner…NKE will sustain at all costs…AdiBok has its back against the wall.

The Running category is going to have its share of fireworks in 2009. For starters, Under Armour is making a big push into the space – and my strong view is that UA will succeed. The company is going in at price points averaging around $90, which is at the very high end of what runners will pay, and they’re going about the R&D and marketing in all the right ways. Huge opportunity for UA given that this is a $5bn category at retail. Nike owns this category with 65% share, and the next largest brand (Asics) at 15%. Past that, there are several more brands that bring up the rear in the 2-6% range. UA is not even on the map. The consumer genuinely wants this brand to succeed. Don’t underestimate that. Every point of share is 3-4% top line growth to UA (not including running apparel). I still don’t see why this company cannot have 3-5% of the US footwear industry over 3 years, which alone grows UA by 2/3.

But what about everyone else? Asics and Saucony (owned by Payless) each garner over 80% of sales from running, and they’ll put up a fight. New Balance is 32%, and will put up a fight as well. This is not to mention brands like K Swiss that are growing into running, and Nike that will defend its turf at all cost. The big loser? I’d hate to be Adidas/Reebok. I personally think neither stands a chance in the US next year. They’re not proactively managing for the tail risk we’re likely to see.

The Road To ZERO

I am not sure that everyone is aware of the global macro calendar this week, but on Friday (our Thursday night), the Bank of Japan is going to be making their call on interest rates. While the chart below looks more Japanese than it does American, look at it for what it is… and don’t think for one second that Japan won’t follow “Heli-Ben’s” move on Friday and cut to ZERO as well – been there, done that. These guys are the FREE money, flat yield curve, pros.

Now people who have been missing the latest “Re-flation” in Chinese stocks and gold (we have been long both) are going to be delivered the revisionist memo as to the ever so elusive macro “WHY”!

FREE money is crushing the US currency alongside the integrity of “Investment Banking Inc.’s” handshake. As the bond market begins to figure out that all is no longer safe in the land of nod – the “Re-flation” squeeze in US equities, and equities globally, will defy the academic view (which I agree with) that this Japanese exercise will not end well.

Strap on your seatbelt’s.

Heli-Ben" is Santa! Christmas comes early!

In markets, and in life, there are always unintended consequences born out of aggressive actions. The politicized US Federal Reserve has certainly proven this since Clinton/Greenspan created the modern world of finance’s first Fed-watching mania. The Fed’s decision to cut to a “targeted range of ZERO to 0.25%” is the final chapter in a world that has come to be managed reactively, rather than proactively.

Clearly, today’s political pressures have mounted on Ben Bernanke to the point of no return. He is officially dropping US interest rates to ZERO. The best things in life, at least in the immediate term, are those that come for FREE. “Heli-Ben” flies again!

The unintended consequences will be dominated by the realities of our latest Investment Theme – “Re-Flation” – and there is no better chart that reflects the prospects for that “Re-flation” than the one below. Bah Bye US Dollar - hello asset class appreciation. While no one can truly believe that he has cut rates below those that are currently in place in Japan, guess what? He just did – believe it!

Never mind the long term implications – those don’t matter right here and now. This is very positive for the US stock market in the immediate term. My immediate term “Trade” target for the SP500 is 916. Next level of resistance in my model after that is 934.

Keith McCullough
Research Edge, LLC

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UK Consumer inflation for November came in at 4.1% today, down from 4.5 in October but still well above their French neighbors across the channel, who came in at 1.9% for the same period, down from 3% the month prior. The pound reached a new low against the Euro on the news as the deflating economy clears the path for more cuts by the BOE.

The UK continues to be the sickliest looking of the large European economies. With a housing market in freefall, a devastated financial sector and inflation levels that remain high on a relative basis –the prospect of a recovery in the foreseeable future is very dim indeed –regardless of any more intervention by Brown, Darling & King LTD.

Although we closed out of EWU position last Friday we will continue to keep our eye on the UK and will look for opportunities to re-short into strength

Andrew Barber

The US Consumer Gets Some Respect

Lost in the madness of the media’s mania with Goldman Sachs this morning may have been the impressiveness of the y/y decline in consumer price inflation (see chart). The Consumer Discretionary stocks aren’t missing this – that’s why the XLY consumer index is breaking out.

Headline CPI fell by more than where the Street had their heads (in the sand), coming in -1.7% month over month, driven by a massive drawdown in energy prices which tanked by -17% month over month!

Consumer price inflation growth in the USA is now growing at a snail’s pace (lowest sequential monthly growth since the early 1960’s), and this is a screamer for the consensus “short the consumer” crowd, at least in the immediate term. While it now matters to one Warren Buffett, Goldman losing $5/share matters to less than 0.01% of this country’s population. Falling gas pump prices matters to more than 99%.

Facts don’t lie, people do. This US market’s immediate term lows are in. If the only reality is that the US consumer’s confidence is improving because it couldn’t get worse (Madoff), that’s good enough for me. It’s what matters on the margin that matters most to my macro model.

Keith R. McCullough
CEO & Chief Investment Officer

Are you ready for some rate cuts?

“So get ready.  I mean, get ready.”
-Hank Williams Jr.
While Monday Night Football is usually past my bedtime, I did get the opportunity to hear ole Hank Williams Jr belt out “All My Rowdy Friends Are Here On Monday Night” last night. What a beauty of an American remix that song has become. We should use it as a rallying call to all global equity investors who are looking to lever up long on the FREE money “Trade!”
Our special thanks to Alan Greenspan for the beers and the “Made-Up” Madoffs. Greenspan teaching “Heli-Ben” how to party won’t end well, but man is it going to be fun! “I mean get ready!” … “We’ve got Al and Ben and Hank”… “they’re gonna get it kick started”… Are you ready for some rate cuts?! A rate cut party!
There remains an American media mania in both Fed-watching and rate-cutting that has yet to see her final Karaoke. This bar is open after hours folks – from Japan to Saudi Arabia they’re going to party like it’s 1984 all over again, crank up the tunes, and cut them rates to zero!
This morning the Saudis woke me up to another 50 basis point cut, taking their benchmark rate down to 2.5%. Since wage and imported currency inflation remains a reality of life in the Middle East, that means rates are negative now on a real basis. This was the 4th rate cut by the Saudis in the last 3 months, and now their stock market, the Tadawul Index, is havin’ a little “re-flation” party of its own, trading up +16% since November 23rd.
In Asia, with the Japanese Tankan confidence survey tanking to a 34 year low yesterday, there is a very good chance that the compromised and confused Japanese socialists cut rates to ZERO on Friday. Never mind calculating what the inflation rate does to real rates – these guys don’t do math that way – Japanese rates will potentially be nada, nominally, by year end. 
In China,  the equivalent of the head of the US Federal Reserve made  a very important statement overnight that CNBC will not pick up on (at least not until they read my note). I think that Hank Williams might have as good a chance at guessing the name of the governor of the People’s Bank of China as anyone on the E! Channel’s newest competitor. His name is Zhou Xiaochuan, and as of last night’s speech in Hong Kong, he supports the following rate cutting message: "First we care about the cost of capital for enterprises and secondly the interest rate should be linked with CPI.”
In English, with Chinese CPI now down to +2.4% year-over-year, that gives us a new target for Chinese interest rates. “So get ready… I mean, get ready!” The Chinese just told you they can cut rates in HALF from here. This is why all Asian equity and stock markets are “Re-flating” folks. “A Monday Night party!” continued in Asia overnight with both China’s and Hong Kong’s stock markets closing up yet again. These equity markets are up over +20% and 40%, respectively, in the last few months for a fundamental reason. The math doesn’t lie, people do – especially when plenty of them just told you they were drinking the “Madoff” for the last few years.
Those who are hung-over by the madness of the storytelling on Wall Street, are likely going to be managing your money even more reactively than Paulson and Kashkari are managing the TARP. That is a scary thought - one that should be proactively prepared for, and taken advantage of. The New Reality is that Barack Obama is going to let the FREE money policy prevail, for at least the immediate term. This is the only strategy that will allow him the immediate term provision that Franklin Roosevelt sought out, “Re-Flation.”
When FDR came to the bombed out Hoover party White House, the first thing that he had his eyes on was devaluing the US Dollar via solid gold “re-flation” – if you aren’t going to raise rates (our contacts are telling us Obama won’t immediately), this is the only way out. “Re-flating” the American dreams of their portfolios and homes is where the heart is.  Even “no drama” Obama has his soft spots. Incidentally, in the last 6 days of trading, gold is up +11% and the US Dollar is down -6%.
When the entertainers from Monday Night Football are as adept at calling the market as those on the channels that were built upon the largest global asset mania in world history, you have yourself plenty of reason to get ready. “So get ready… I mean, get ready” for some rate cuts!
My SP500 support level is 868.11 and I have an immediate term upside target of 914. That’s only 5.3% higher, but if I was in 100% cash all year until this morning, and tacked that yardage onto my 2008 stats, I might even beat Bernie’s “Made-Up” numbers. If it’s there for the taking – let’s go get it!
Best of luck out there today,
Long ETFs
SPY-S&P 500 Depository Receipts – CME front month futures contracts traded as low as 868.9 before 7AM this morning.
DIA –DIAMONDS Trust Series – CBOT front month futures contracts traded as low as 8,582 before 7AM this morning.
XLV Health Care Select Sector SPDR –– the American Heart Association released a statement yesterday that concluded that heart attacks and stroke deaths in the US  dropped by a third between 1999 and 2006 as more people stopped smoking, ate better and had access to cholesterol lowering satins and blood thinning medications.
EWZ – iShares Brazil—The approval rating of Brazilian President Luiz Inacio Lula da Silva’s government rose to a record 71.1% in December, an Instituto Sensus poll showed. Cia. Vale do Rio Doce, the world’s second-largest nickel producer, formed a joint venture with African Rainbow Minerals Ltd. to develop copper and cobalt deposits in Central Africa.
EWG – iShares Germany – The DAX is trading up 1.74% at 4735.59 this morning on speculation that the US FED will cut interest rates today.
EWH –iShares Hong Kong –The Hang Seng closed up slightly to 15130.21 or 0.55%.
 FXI –iShares China – China’s coal prices tumbled 9% last week. China, one of the world’s largest producers and consumer of coal, has seen price halved from record July prices to the current 580 Yuan or $83.70 a metric ton. CSI300 closed up this morning 19.42, or 0.98% to 1994.45.
Short ETFs
FXY – CurrencyShares Japanese Yen Trust –The Yen is up slightly against the USD to 89.980.
IFN The India Fund—SABMiller Plc, the world’s second-largest brewer, is challenging state governments in India to loosen the rules on beer sales, and said profit in the country may double if it wins a court case. The rupee rose 0.4% to 47.855 per USD.
Keith R. McCullough
CEO & Chief Investment Officer

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