VFC Acquisition Comments Live From Lunch

Very actively looking. "very busy" looking. Action sports and outdoor top priority, comtemporary not at the top of list given challenges there in marketplace. Got a chuckle from CFO when directly asked about an action sports deal. (ie DC Shoes).

China, Australia, India, Pakistan: An Update...

Facing the rise of China as a power and the descent of Pakistan into Chaos

Saber Rattling in Canberra


Last week an Australian government white paper titled "Defending Australia in the Asia-Pacific Century; Force 2030" outlined a program of spending that will ultimately exceed $72 billion and bring 12 new nuclear submarines, 100 fighter planes, upgraded destroyers and frigates  and a plethora of other ordinance online over the coming decade.  This document follows the Australian Strategic Policy Institutes December report and largely draws the same conclusions (although it reflects the present administrations desire to keep defense costs lower).


For US observers, the rise of China as a military power is a fascinating and complex situation on the horizon. For the Australians it is a more nerve wracking development in their backyard. 


With a country a little smaller than the lower 48 states, but a population of only about 21M, the land down under has always faced uniquely insurmountable defense issues which are exacerbated by their undisputed role as the beat cop for the entire Southern Pacific. They simply do not possess the manpower to defend the space they inhabit and police. Historically they have offset this through alliance (particularly with the US) and a military tradition that has won them the reputation as some of the most tenacious and respected soldiers on earth (witness the inscribed words of  Mustafah Kemal at ANZAC cove).


The rise of Chinese military presence in the Pacific region, coupled with increasing diplomatic and economic clout raises a variable that is   a bigger challenge than the Australian military faced during the cold war, and now that the US is curtailing defense spending and recovering from the demoralizing Iraq actions they are increasing feeling alone.  This new spending will not make the Australian military self sufficient in the face of a threat from a major power, but it goes a long way towards closing the gap. Critically, this sends a clear message to the Chinese and they will not like it. 


From a political standpoint, Australia asserting its strength appears uniformly positive to us as a regional balance, and the residual economic impact of increased defense spending should be long term positive for Australian contractors brought in on projects.


Pakistan: Nobody Wins


As the Indian elections continue, most parliamentary candidates across the political spectrum walk a tightrope between displaying resolve in response to last Year's Mumbai attacks and shrill antagonism for Pakistan. This doesn't represent a new found desire for peace and cooperation as a much as a pragmatic attempt to remain removed from the increasingly chaotic mess that Pakistan's internal security is becoming; an unwelcome acknowledgement that a fractured Pakistan may ultimately be more dangerous for India than a strong Pakistan.


 The Mumbai terror brings home the threat to the Indian government, but they are far from alone. US, Australian and NATO governments are monitoring the increasing weak looking post Musharraf regime with almost as much alarm as the deteriorating situation in the tribal regions controlled by the Taliban.  The re instatement of Justice Chaudhry has appeased the PML somewhat, but in a nation where indecisiveness equates to weakness even rational diplomacy carries risks.


The perception of some observers that president Zardari ultimately retains power solely at the pleasure of the army, the only truly functional government force in Pakistan, may not be entirely accurate. Never the less, the military leadership remains the most powerful single political force in the country by virtue of their strength, and they have their own agenda entirely separate from the government.


We see Pakistan as the biggest wild card in Asia, quite a statement if you consider the current issues in Thailand, North Korea and Sri Lanka. Despite all of the threats lurking elsewhere, the unique threat posed by Pakistan's nuclear arsenal (Pyongyang's mastery of photoshop not withstanding) changes the complexion of the turbulence there entirely, essentially forcing all powers in the region to attempt intervention in the event of a complete collapse of government. Among the many things that keep us awake at night, Pakistan's internal situation is near the top.


Stocks in Pakistan closed down -1.8% overnight amidst nothing short of a meltup across the rest of Asia. Canary in a coal mine? Stay tuned...


Andrew Barber

'You Tubing' VFC At Analyst Event

-Initial price points coming down for holiday. Price investement achieved with lower fob's. Not dropping benefit to bottom line.


-SKU rationalization evident. Building 80 pct of the biz on key items with total skus down 50 pct over the past couple of years


- Lots of talk about how macys centralization is driving more focus on replenishment biz, which should double over next few years. Focus appears to be more on basics and less on risk/fashion. Seems to me that this brand is heading for more competition on price than ever. Haven't heard too many fashin brands heading in this direction.


More to come from lunch which is in a little bit and should be more VF Corp focused.

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Where There’s Smoke… Notes for the Week Ending Friday, May 1, 2009

Along Comes Mary

For once, then, something.
- Robert Frost


We flatter ourselves to think that Mary Schapiro has been reading these columns - no doubt in secret, and behind a locked door.  We have been flogging our idea of a high-level SWAT team of Wall Street compliance professionals (indeed, as recently as last week, qv).  Now the SEC has announced a program very much along the lines of our proposal.  With nary a gloat, we offer the following from this week's SEC release:

SEC Announces New Initiative to Identify and Assess Risks in Financial Markets


Washington, D.C., April 30, 2009 - The Securities and Exchange Commission today announced a new effort to identify and assess risks in the financial markets by attracting seasoned industry professionals to the agency's Office of Risk Assessment.
"It's a great way to bring in highly-seasoned financial experts who can help us keep pace with the practices of Wall Street and protect investors," said Chairman Mary Schapiro, "and provide industry veterans the unique opportunity to help us restore confidence in the markets."
The SEC will immediately begin recruiting candidates with extensive experience in the financial markets.


Now for the bad news.


Right off the bat, there is the inherent timidity of government initiatives in the face of generational entrenched bureaucracies.  Scrolling down the application information, we note - "The Program will initially include three full-time Fellow positions," and that "Salary is commensurate with experience. In 2009, salaries for Industry and Markets Fellows range from $108,286 to $227,300.


According to the SEC website, their job might include:


* identifying products, practices, and processes that pose risks to investors and markets; assisting staff in identifying and collecting additional information necessary to better understand the scope or impact of the risk; [Translation: telling the SEC what they really should be looking at, instead of the checklists and other nonsense they waste most of their time on.]


* developing educational/informational programs and materials to help familiarize SEC staff with current industry practices, products, trends and related risks; [Translation: explaining to the SEC staff how the industry actually works - from the perspective of people who have spent their careers on the inside.]


* working closely with managers in offices and divisions to help design responses and solutions to identified risks; [Translation: creating procedures that will actually prevent crime; also, coming up with punishments that will really hurt.] and


* engaging in discussions with representatives from a wide range of institutions, including but not limited to regulated and unregulated market participants, domestic and international regulators, academics and others. [Translation: acting as interpreter between the SEC and Wall Street.]


This is a once-in-a-generation opportunity to retool the inner workings of one of the most needlessly convoluted agencies in a government already noted for being Byzantinely labyrinthine.  (Or should that be "labyrithinely Byzantine"?)  Chairman Schapiro is widely credited with effectively combining the NYSE and NASD into FINRA, during which she engaged in pitched battles with warring embedded bureaucracies on both sides.  The NASD, a largely useless agency when Schapiro took it over, was nothing compared to the scope, size, and massive uselessness of the SEC.  (Note that we define "uselessness" as a function of size, budget, and target influence on the marketplace.)  The three "Industry and Markets Fellows" - terms limited to two years, with a single possible renewal - will be faced with a task better tackled by the fifty professionals we have been advocating.  Our approach also contemplated higher salaries, designed to attract serious Wall Street talent.

The job description reads as though written for a specific candidate - someone's nephew was fired during a round of cuts at Cadwalader, Wickersham & Taft.  After six years of late-night slogging and sucking up to senior partners, his dreams of making Partner had suddenly gone up in smoke - then along came Mary.  Or whoever.

We wonder how the selection process will actually work. Don't bet on the low salaries being a deterrent, as candidates are coming in for two years, plus a possible further two - in other words, just enough time to ride out what is likely to be the worst of the economic downturn, see a reconstituted Wall Street get back on its feet, and re-emerge into the private sector with "SEC" on the resume.  Pace Obama and the radical reimagining of government, it looks like the old-school revolving door is at work again.


Rounding out our proposal, we saw our Gang of Fifty pairing Wall Streeters with State Securities Commissioners and AGs to drill down on specific local challenges.  Thus, the SEC could provide insight into market abuses arising from Nevada's permissive approach to incorporating, and could coordinate with the Connecticut AG on the Securities Ratings Agencies case.  New York AG Cuomo would presumably want an entire cadre of his own - and such an idea is still not out of the question.  If the SEC won't bite, perhaps the Empire State will.

Just a thought.

Even though it looks to us to be way too small, we are tentatively cheering for this new program.  Even this little something is immeasurably better than the nothing we had before.  We will give Chairman Schapiro the benefit of the doubt: our guess is that when this idea was first broached, the lifers inside the SEC went ballistic.  Think of it - the notion of a bunch of investment bankers and traders telling the government how to regulate the market...  But if the public is made to understand this, and recognizes the benefits to the marketplace, things could rev up in no time.  All it takes is for the press to run with this in a positive way.


We wish Chairman Schapiro well, and we look for this program to expand - if not by fiat, then by stealth.  If not be stealth, then perhaps by acclaim.


The Lookaway


Misdirection - what we call the "Lookaway" - is studied by ninjitsu practitioners and by professional magicians. The Lookaway relies on common physiological and neural patterns, which are manipulated, forcing our attention to unconsciously shift away from the real action just long enough to accomplish the goal - be it sleight of hand, or a fatal attack to a vulnerable body part.


The Lookaway also applies in the financial markets.  When we are distracted by one set of seemingly important facts, other forces operate unfettered.  Usually, these forces are not even identified until they have created a very loud and nasty explosion.  Whether you are making money, or losing it, nothing provides a better Lookaway than fast and extreme movements of large quantities of cash.


The SEC has a new proposal out to impose restrictions on short selling.  Linklaters, the global law firm, sent us a thorough and lucid piece spelling out the specifics of the Proposal, and detailing the various options.  It is Linklaters' own comment on the SEC's position, though, that we find most illuminating.  We excerpt it here:


"The SEC is facing considerable political pressure to take action to restrict short sales... due to the widespread perception of the ability of hedge funds and other short sellers to talk down, and then to engage in unrestricted short selling of financial stocks...[which]  contributed materially to... the current financial crisis.  There is also a widespread assumption... that the Original Uptick Rule, which was in effect during the period between 1938 to 2007, did in fact help cushion the market, and indeed the broader economy, from collapse brought about by 'bear raids' and other short sellers."  They go on to observe that there is little love in the air for hedge funds or other professionals, but also that there is sparse empirical evidence to support the notion of re-establishing an Uptick Rule or other restrictions.
Here's the Lookaway.

Political pressure to crack down on short sellers lies along a continuum with the slaughter of the Kulaks.  High-visibility gentlemen in $2000 suits and Park Avenue addresses are on the fecal roster of everyone from the Speaker of the House, to the Che T-shirt crowd.  People will always hate those who rise high, but taking the billionaires to task in the interest of the SEC making headlines is not an efficient use of taxpayer dollars.

Short sellers are the original Smart Guys on Wall Street, capitalizing on the fact that they always know more than the Longs.  The Shorts are smarter than the Longs, work longer hours, do lots more research and are better informed, and have greater insight into human nature and the mechanisms that move markets. 

The FSA - the UK financial markets regulator - in their Discussion Paper 09/1, "Short Selling", issued in February - concluded that any restriction on short selling would limit both information and liquidity in the markets, without substantially adding to investor protection.  They quote an almost identical conclusion from the SEC's own report in the aftermath of the Pilot Program banning short selling on a basket of financial stocks.  Both government regulatory bodies come to the same conclusion: available data do not support the imposition of a regulatory ban or severe restriction on the practice of short selling.

How smart are the Shorts?  Floyd Norris' blog ( 30 April, "Is Naked Shorting Gone?") shares his correspondence with Patrick Byrne, Chairman of and a longtime foe of dirty-dealing short sellers.  The takeaway from this exceptionally articulate gentleman's analysis is that the shorts have managed to divert public attention to Upticks and Downticks, when the real skullduggery goes on in the world of settlements and deliveries.  We will return to this in greater detail in future posts, but - pun intended - the long and the short of it is, fails to deliver are covered up by a series of machinations to which the traders, the executing firms, and the prime brokers are all privy.  On a trade-by-trade basis, these wafflings do not cause obvious harm to the investors.  Yet, taken cumulatively, they can create immense pressure on the stocks in question, while possibly also cloaking the effect on firms' capital.

Stay tuned as we look closer into these practices.  Meanwhile, Norris' blog always makes excellent reading.  As the sign in our local pizzeria says: When you get something good, remember where you got it.


Secondhand Smoke: Our Paranoid Fantasy Du Jour


I admit that two times two makes four is an excellent dictum, but if we are to give everything its due, two times two makes five is sometimes a very charming thing too.
  - Dostoevsky, "Notes From Underground"


We hate it when we have missed the obvious.  Our only consolation is that everyone else missed it too.  When things suddenly seem to add up, it is useful to recall Dostoevsky's dictum.  Now an old two plus two is suddenly coming back into focus.


Floyd Norris, writing in his NY Times blog (27 April, "How Not To Regulate") describes the purposely lugubrious pace of Christopher Cox' Chairmanship at the SEC.  Cox was given a mandate to craft consensus at the Commission.  To obtain that consensus, says Norris, "Mr. Cox agreed to throw up a series of procedural hurdles in the way of the enforcement staff investigating and settling cases. Some former enforcement directors thought Linda Thomsen, the enforcement director Mr. Cox inherited, should have quit in protest. Had she done so, the result might have been an enforcement director who did not believe in enforcement. So she stayed, and took much of the blame."

Thomsen was made Chief of the Enforcement Division in May 2005, under outgoing SEC Chair Donaldson.  On 2 June, Cox was appointed SEC Chairman.  On 28 June, Thomsen - the ink barely dry on her appointment - took a call from Morgan Stanley counsel Mary Jo White, seeking insight into the SEC's position vis-à-vis Mack, who was Morgan's choice for CEO.
Thomsen, as we have noted, told White that there was "smoke, but no fire" in the Mack investigation.

Fast forward to November of that same year, when Thomsen fired Gary J. Aguirre, the SEC Enforcement attorney heading the Pequot investigation, finally closing the investigation in 2006 with no charges being brought. 

While some outside the Commission believe senior personnel, such as the Enforcement Chief, have discretion in having sub rosa communication with outsiders, the Commission's own Inspector General did not share that view, and issued a 191-page report that found "serious questions about the impartiality and fairness" of the SEC's investigation of possible insider trading at Pequot Capital.  The report recommended disciplining Thomsen, and derided the "common practice" of giving outside lawyers access to high-level SEC officials. 
Within hours of Thomsen and White speaking, Mack was named CEO of Morgan Stanley, a position he holds to this day.  Which means that, now that the SEC has re-opened the Pequot investigation, they will know where to find him.

We admit to being conspiraholics, and so we just love it when events click.
Like (former - tough beans!) BofA Chairman Ken Lewis testifying that (former - whew!) Treasury Secretary Paulson told him that (still serving... Hmmm...) Fed Chairman Bernanke insisted that BofA complete the Merrill Lynch acquisition, and that if Lewis opened his mouth about how bad Merrill's books were, he'd be fired and replaced with someone more pliable.
We have some new questions regarding a Commissioner who purposely Did Nothing, and an Enforcement Chief who, by all accounts, was known as being exceptionally tough on corruption.  Did Chairman Cox "tell" (wink-wink) Linda Thomsen to "tell" (nod-nod) Morgan Stanley about John Mack?  Like Hank Paulson "told" Ken Lewis to shut up and swallow?  We think it is likely that Cox knew about it before the fact, albeit under the cover of some form of Plausible Deniability.

Like Paulson and Bernanke deciding that they know what's best for the markets, and they will make the rules - here we have two senior government officials deciding who gets what information, and when.  Presumably, in their minds, this is a legitimate twisting of the rules in the service of market stability.  In other words: those who make the law, also decide who gets to be Above the Law. 

The body had not yet cooled, metaphorically speaking, when, in the January interregnum between the Bush and Obama Administrations, the SEC re-opened the Pequot matter.  Watch for "Smokey" Thomsen to be called in to testify, and we sincerely hope there will be questions about Who Knew What, and When Did They Know It? 


Chairman Cox may be brought in as well, and we expect an awkward moment or two. Cox apparently declared himself appalled at Thomsen's mishandling of the Pequot investigation.  His side of the story would seem to be, he was a newly-minted Chairman, working alongside a newly-minted Enforcement Chief, and watching helplessly as she eviscerated a long-running and exceptionally high-profile investigation.  We can not speculate whose idea it was to fire Aguirre, but if Chairman Cox is pulled into the re-opened proceedings, you can be sure this will be asked.  And as we know, the court of public opinion convicts, not on the basis of Beyond Reasonable Doubt, nor on Preponderance of the Evidence, but more along the lines of "Weren't you also in the room at the time?"


We are trying to imagine the political outsider brought in with a mandate to get everyone working together.  He is handed a longtime insider, newly promoted to a high-visibility spot, and in the midst of an investigation with the potential to rock Wall Street from end to end.  Cox calls Thomsen into his office and says, "This is Major Stakes.  Have you got the goods?"  Thomsen pats her pockets, rummages in her briefcase and says, "I had it... it's right... " She snaps her bag shut, pushes her glasses up on her nose and tells Cox.  "It'll turn up."


Chairman Cox may be fairly criticized for many things, but we wonder whether the botched Pequot investigation will turn out to be, not his first major cover-up as SEC Commissioner, but his first major head-slap.


And remember, New York Attorney General Cuomo may get to jump on this one before it's over.  We can't wait for the new season of this Reality Show.


Pigs is Pigs

You can put lipstick on a pig, but it's still a pig.
  - Barack Obama


Owning the Debate: Israeli newspaper Haaretz reports (27 April) "Ultra-Orthodox Deputy Health Minister Yakov Litzman declared that Israel would call the new disease 'Mexico Flu,' rather than 'Swine Flu', as pigs are not kosher."


America's pork producers (you know their advertising: "The other white meat") have chimed in, asking that the illness be referred to as H1N1, in recognition that eating pork does not cause this disease.  May have at one point incubated in swine, and there appears to be evidence that it affects humans who live in close proximity to large pig populations.  This gives credence to Vice President Biden's warning to stay away from enclosed spaces, especially when there are pigs around.  When boarding an airplane, we advise you demand to switch seats if the passenger next to you is a pig.


While our research is merely anecdotal, we note the health section of the website, which says "There is no evidence that it is transmissible to people through eating pork or any other products obtained from pigs. If pork is properly cooked, it will not transmit the virus, which is destroyed at a temperature of 160°F/70°C.  It is worth noting that consuming pork or any product derived from pigs is forbidden in Islam."


Indeed, every commentary on this illness makes the point that the best way to prevent infection is frequent washing of the hands.


This reminds us of an encounter witnessed in the men's room at the late, great Bear Stearns.  One gent was at the sink when another came in, used the urinal, zipped up and prepared to leave.  The first gentleman, wiping his hands on a paper towel, said, "At Harvard, they taught us to wash our hands after we pee."  The other replied, "At City College they taught us not to pee on our hands."

President Obama has just returned from a trip to Mexico.  There he was hosted by Felipe Solis, Director of Mexico's Museo Nacional de Antropologia, as reported in the Mexican newspaper El Norte (25 April).  Professor Solis, according to press reports, embraced President Obama, then accompanied him into the Museum where they examined an Aztec calendar and dined together.  The next day Solis was hospitalized with flu-like symptoms.  Within one week, he was dead.


The President and First Lady have returned hale and sound, for which we are grateful.  We marvel at the coincidence that this worldwide health scare blossomed from the very spot where the President stood - indeed, perhaps from the very man who embraced him.  Conspiracy theories aside - even we will not speculate on this one - we are comforted by the knowledge that both Obamas went to Harvard.  Presumably they were taught to wash their hands.  


Moshe Silver

Chief Compliance Officer


WYNN is a great company but at least for Q1, LVS may shine the brighter light in an otherwise dark economic quarter.  As we wrote about in our 4/14/09 note, "LVS:  Q1 SHOULD LOOK BETTER THAN WYNN", LVS should benefit from its convention exposure, easier comparisons, market share gains in Macau, and faster and deeper cost cutting. 


WYNN, on the other hand, is probably most susceptible to room rate cuts on the Strip since its Las Vegas properties generate a higher percentage of its profits from the hotel.  Moreover, the company was hurt by Encore cannibalization of Wynn Las Vegas and the drastic rate cuts designed to attract visitors to the added hotel supply.  In Macau, Wynn Macau maintains more exposure to the softer Rolling Chip segment which is facing very difficult, liquidity-driven comparisons.


WYNN will report EPS tomorrow morning while LVS is reporting after the close tomorrow.  The chart below details the year-over-year projected Q1 growth as implied by our models.  Clearly, LVS should have a much better ("less bad") quarter than WYNN, maybe even better than our projections.




"No one can possibly achieve any real and lasting success by being a conformist."
-J. Paul Getty
Remember all that Swining, Stressing, and Whining from early last week? I do - it was just one more of 2009's great opportunities to capitalize on what we have labeled as Glaring Groupthink.
As most of you know, I really like to make up names for things. I start writing this note at an un-Godly hour of the morning, and I guess part of it is finding a way to entertain myself. Now that my morning missive is beginning to find its way into broader distribution, it is fascinating to see things like The New Reality or The Great Recession pop into Wall Street's bloodlines. At the end of the day, Wall Street is proving to be just what it is - one giant meme machine.
Jean Paul Getty was one of Main Street's real-life oil men and his aforementioned quote, when considered here in 2009, needs an asterisk - and that's that anyone can achieve lasting success as a politician by being a conformist. Did anyone watch Arlen Specter backpedal on Meet The Press yesterday? Wow - solid session of You Tubing there.
Now that Paul Volcker has a Transparency/Accountability date on the calendar to actually walk Americans through what he sees on these compromised Streets of the US Financial System (May 20th), he is going to get some overdue airtime. The men and women of Research Edge thank Mr. Volcker for supporting our program - he is calling this, "The Great Recession."
As a result, the manic media can now officially shift their focus away from Roubini and the Depressionista theorists, and see the light.  That is, the light that's been on. As in any Recession, however Great it may be... early cycle leading indicators begin to signal a recovery. The signals that I focus on most are grounded in marked-to-market prices. Since late February, these prices have been as crystal clear as the sun rising in the east.
To review the fundamentals:
1.       Chinese growth accelerated from the Q408' cyclical lows (all of Asia and the manic media covering it is going gaga over China printing an expansionary PMI number for April last night - Chinese stocks closed up another +3.3% at 40.6% YTD).  

2.       ASEAN countries (Southeast Asia) have adopted a $120B currency reserve fund (the Chinese replacement rhetoric for Yuan vs. the compromised US Dollar continues, and what's bad for the Buck, is great for REFLATION).   

3.       Breaking the Buck works, in the intermediate term (the US Dollar closed down again on a week over week basis last week, breaking down through TREND line support of 85.64 = REFLATION).  

4.       The Russians get paid when oil goes up (as the USD breaks down, oil is starting to breakout... oil was up for the 2nd week in a row last week and this morning Russian equities are tacking on another +2.2% to their YTD stock market gain of +34.7%)  

5.       The Saudis, The Canadians, The Australians, The Brazilians, etc... all get paid by either China or Petrodollars too (re-read points 1 and 4; The Client is China).  

6.       Credit markets look as good as they have looked in a year (as the credit mechanism is reinstated, capital starts to flow, and being long short interest becomes one of the best ideas an investor can have).
I'll stop at six relatively large factors that are A) Fundamental and B) Historical Facts, because if I broaden the note out to US Consumption being +2.2% in Q1 of 2009 or explain the fundamentals of the MEGA Squeeze in Consumer Discretionary stocks (Mortgage Rates, Employment, Gas Prices, Asset Prices), some people really get upset.
The New Reality remains that in a country that has lost the integrity of its Financial System and the validity of the handshakes by those leading it, that being a conformist of Wall Street consensus is starting to trade at a significant discount to even perceived wisdom.
With all of these fundamental realities in the rear view, expect consensus to morph into a liability again... at some point... but not yet. For now, we are still very early in Q2 and the hedge fund redemption cycle has the power of kicking in Part Deux of what I am now going to label the Sucker's Squeeze.
Hedge fund redemptions work both ways folks. I can assure you that those who missed the both crashes (on the way down and on the way up versus consensus expectations), will be forced to cover their illiquid short positions in the very near future.
There will be no "side pocket" or government bailout for unrealized losses on the short side. Unlike the crash on the way down, this recent one on the way up is going to highlight who the real Sucker's of Stress and Swine Tests really are.
In the immediate term, I have the SP500 overbought above the 883 line. I'll be back in the game buying short interest on the down moves using 860 in the S&P as my support.
Best of luck out there today,



SPY - SPDR S&P 500-The SP500 is positive from both a TREND and TRADE perspective.  Additionally, the market continues to make higher lows, which is a bullish indicator.  

EWD - iShares Sweden-We bought Sweden on 4/30 with the etf down on the day and as a hedge against our Swiss short position. Sweden is up a healthy 15.3% YTD and has bullish fundamentals. The country issued a large stimulus package to combat its economic downturn and the central bank has effectively used interest rate cuts to manage its economy. Sweden's sovereign debt holds a strong AAA rating despite Swedish banks being primary lenders to the Baltic states. We expect Sweden to benefit from export demand as global economies.  

EWC - iShares Canada- We want to own what THE client (China) needs, namely commodities, as China builds out its infrastructure. Canada will benefit from commodity reflation, especially as the USD breaks down. We're net positive Harper's leadership, which diverges from Canada's large government recent history, and believe next year's Olympics in resourcerich Vancouver should provide a positive catalyst for investors to get long the country.  

XLE - SPDR Energy- Energy decidedly outperformed the market on 5/1, closing up 3.2%. We're long this sector and think it works higher if the Buck breaks down.

EWA - iShares Australia-EWA has a nice dividend yieldof 7.54% on the trailing 12-months.  With interest rates at 3.00% (further room to stimulate) and a $26.5BN stimulus package in place, plus a commodity based economy with proximity to China's H1 reacceleration, there are a lot of ways to win being long Australia.

TIP - iShares TIPS-The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%.  We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

USO - Oil Fund-We bought more oil on 4/20 after a 9% intraday downward move. We are positive on the commodity from a TREND perspective. With the uptick of volatility in the contango, we're buying the curve with USO rather than the front month contract.

GLD - SPDR Gold-We bought more gold on 4/02. We believe gold will re-assert its bullish TREND as the yellow metal continues to be a hedge against future inflation expectations.

DVY - Dow Jones Select Dividend-We like DVY's high dividend yield of 5.85%.


IFN -The India Fund-We have had a consistently negative bias on Indian equities since we launched the firm early last year. We believe the growth story of "Chindia" is dead. We contest that the Indian population, grappling with rampant poverty, a class divide, and poor health and education services, will not be able to sustain internal consumption levels sufficient to meet targeted growth level. Other negative trends we've followed include: the reversal of foreign investment, the decrease in equity issuance, and a massive national deficit.

LQD  - iShares Corporate Bonds-Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates in the back half of 2009 that bonds will give some of that move back. Moody's estimates US corporate bond default rates to climb to 15.1% in 2009, up from a previous 2009 estimate of 10.4%.  SHY- iShares 1-3 Year Treasury Bonds- If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yield is inversely correlated to bond price, so the rising yield is bearish for Treasuries.

EWL - iShares Switzerland - We shorted Switzerland on 4/07 and believe the country offers a good opportunity to get in on the short side of Western Europe, and in particular European financials.  Switzerland has nearly run out of room to cut its interest rate and due to the country's reliance on the financial sector is in a favorable trading range. Increasingly Swiss banks are being forced by governments to reveal their customers, thereby reducing the incentive of Switzerland as a tax-free haven. 
UUP - U.S. Dollar Index -We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. The Euro is down versus the USD at $1.3268. The USD is up versus the Yen at 99.4750 and up versus the Pound at $1.4876 as of 6am today.

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