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IFN: Another Tough Day On Battlefield For the "Ch-India" Bulls

I wrote a note yesterday with the timing associated with my re-shorting India via the India Fund (IFN) into strength. Sell High, Buy Low.

At 1% of the float, there is barely no short interest to speak of here, so it remains a contrarian position. There is no quantitative or technical support for IFN until we get below $40.

Global Stagflation is here. I am long Australia (EWA), and short India (IFN), as one of the ways to express this fundamental macro view.
KM

(chart courtesy of stockcharts.com)

Cerburus: Does the "Forever" Trade Hold?

We agree with Cerberus Partner, Tim Price, saying ``Auto sales aren't going down every year forever.'' But we have one question? Does the Cerberus Private Equity model have "forever" modeled into the risk management parameters of their investment?

This is classic duration mismatch, and it certainly is not a unique problem to Cerberus. They're actually on the short list of funds whose process we respect, but they brought on a CEO who didn't do macro at Home Depot, and he certainly doesn't do it for Chrysler.

Today, Bloomberg featured a grim recap of Nardelli's reign as CEO of Chrysler and it makes for compelling reading.

Presented as a timeline reaching from the decision by Cerberus partners to install the former Home Depot leader to save the firm last August with much fanfare to the ugly reality of the present.

With the company on track to lose $1.6 Billion in 2008, Nardelli is betting that a complete overhaul of the product line will revive the brand. Among his initiatives is a new Dodge Ram set to go on sale in September. With satellite TV, a car like ride, an bin in the cargo box for hauling 10 cases of beer, the new truck gets only 15 mpg in the city and has a sticker price with options of greater than $40,000.

With every other major Manufacturer abandoning the gas guzzling SUV's and trucks (and closing the facilities that manufacture them) to embrace fuel efficient models and hybrids Nardelli's new Ram initiative is, to say the least, contrarian.
  • John Casesa -``With the company using this much cash and with high gas prices, Chrysler has months, not years, to establish alliances to get products it doesn't have''. Casea predicts Chrysler is unlikely to survive as a free-standing car company.
  • Kimberly Rodriguez, Grant Thorton - predicts Nardelli and Feinberg will try to pilot Chrysler as a smaller company or sell it whole or piecemeal in the next two years. ``They're just trying to get through month to month without writing a big check.''
  • Keith Bachman, Aberdeen Asset -Cerberus's stake in Chrysler is worthless unless Nardelli can pull off a turnaround. ``I consider Cerberus's equity an out-of-the-money call option that may or may not achieve value.''
  • John Murphy, Merrill Lynch ``Chrysler's product pipeline severely lags the industry,...this is an active decision by new owners to rationalize the product portfolio in advance of a breakup or sale.''
  • John Gunning, Manassas Dodge - ``You can't, in six months, or a year, or 18 months, change the product line,'' Gunning says. ``Until we come to grips with that, we are not going to be a viable company.''
  • Jerome York, Kerkorian advisor -``The long-term history of these alliances, in many cases, is not good'' -referring to JV with Chery, Volkswagen & Nissan.
  • Consumer reports -For 2008, only 2 of 21 Chrysler vehicles are among recommended models, compares with 17 of 21 for Toyota and 5 of 8 for Hyundai.

The Bloomberg article contains painfully blunt assessments of Nardelli and the company's prospects from industry observers:

CSX: Another Blow to the "Activists"

While Proxy Governance offered a pseudo accommodative opinion on Chris Hohn's TCI views, Egan-Jones Proxy Services issued the following comments, which look pretty explicit to me:

TCI's agenda is damaging and could impair the value of the shareholders, Egan-Jones wrote. In contrast to the successful strategies implemented by the Board and management team, TCI's interactions with CSX since last 2006 demonstrate a history of unsound ideas that would not have created value for CSX shareholders and, in some cases, would have destroyed value.

While not all "Concentrated Activist" strategies have been created equal, some of them are being revealed for what they are. Me-Too plays on the cheap money leverage cycle.

When the easy money goes away, so will some of these funds.
KM

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Eye on Populism...

Here is a chart quantifying how impactful John McCain's messaging has been this month.

Amongst other names, he is calling Obama, "Jimmy Carter". Maybe he should pull out an economic textbook and review the stagflationary economic times Carter presided over, and present Americans with a practical and proactive solution.

That fact based strategy would win some transparency votes and be a more tolerable exercise than the politically predictable sounds bites he's reverted to.
KM


Weekly Real Time US Consumer Pulse Remains Weak...

On Wednesday's we monitor and model sequential rates of change based on both the MBA Mortgage and ABC/WashingtionPost Consumer Confidence #'s. Both were disappointing again this week.

After showing an aberrational 1 week spike higher last week, the MBA mortgage applications reverted back to their negative "Trend" line, coming in -4.4% week over week. Meanwhile the ABC report came in at -44 versus -45 last week, continuing to "Trend" along the bottom of all its time lows.

Wall Street thinks the worst of the US Consumer has been discounted. I disagree. I think Q3 will be revealed as one of the worst in recent memory. After 64 consecutive quarters of positive US Consumer Spending, this is going to be a critical inflection point.

Consensus is Bearish. In my model of 3 positions (Bullish, Bearish, and Not Enough of one or the other), the Street is NOT Bearish Enough.

I have next support for the MVRX (Morgan Stanley Retail Index) at 137.19.
KM

(Picture: http://www.huffingtonpost.com/huff-wires/20080325/economy/images)

Eye on Fed Centricity...

Unfortunately, I have to reintroduce an investment Theme that I already used in Q4 of 2007 while writing my MCM Macro Blog - "Fed Centricity".

I say unfortunately, because after 8 months of being burned, Wall Street's perpetually bullish narrative followers refuse to read the facts. The end to this story is going to be a painful one for the US equity market to traverse.

From the mass media to the sell side, we have ourselves a mania in "Fed Watching" - I call it Fed Centricity . As a psychological factor, never in the history of any book I have read on markets has there been anything remotely as amplified as the US Fed Centric view that has emerged.

While sitting here on the research floor at Research Edge right now, I am watching Brazilian Central Bank head, Henrique Meirelles, give the Bloomberg TV reporter a tutorial on objective and proactive monetary policy. The reporter looks awkward. And After raising rates to over 12% in order to fight inflation, his stock market and currency is strong, and unlike US policy panderers, he looks right.

Former Chancellor of the Exchequer in the UK, Nigel Lawson, also sounded very sober and right this morning in pointing out that Ben Bernanke and Co. are going to "regret" not following their weathered European colleagues in fighting inflation.

Manias never end well. Bernanke's legacy won't, and neither will the performance of the US investor who is levered long to a US Fed Centric view.

Larry Kudlow's mass media program ends nearly every segment with the tag line that Free Market Capitalism Is the Best Path To Prosperity! ... but Kudlow wants the US Government to intervene at every turn?? That's not free market capitalism Larry - sorry ... you've been 'You Tubed'.

Fed Centricity is something to be weary of, and we have our Eyes on it.
KM

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