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HBI Cleaning Up. GIL Watch Out.

Hanes is absolutely cleaning up. Collectively, Hanes and Fruit of the Loom (owned by Berkshire Hathaway) account for about 75% of the mass market underwear business. But late last year, Hanes really started to pull ahead. Recently however, HBI stepped on the accelerator and its market share lead accelerated meaningfully. The April numbers show a 10 point market share lead - which is pretty huge given that FTL had the pole position just 2 years ago.
  • Both price point integrity and sell through rates (near 35%) remain strong. The reason is that there's finally a team in place at HBI that is running this business for growth, instead of being milked (better yet, bled) by former parent Sarah Lee. But at the same time, Gildan is going after HBI's share in mass channels. My sense is that Warren Buffett won't let FTL lose share forever. They'll push back. I remain of the view that GIL is underestimating the margin implications as it clashes with the titans.
  • This remains one of my favorite 'negatively inflecting business model' stories. Check out my 6/2 GIL posting. It lays the story out appropriately.

Gold Rush: Every Time Gartman says sell it...

Analyst, Dennis Gartman, has a great commodities research product, but unfortunately he has succumbed to being held hostage by CNBC's "Fast Money" community for short term trading calls . This of course, has led him to making some pretty bad trading calls. He is an analyst, not a trader. This is no market for analysts to be trading. Maybe the Mets should get their 2nd baseman to start pitching, but I doubt that works for them either.

I'll continue to push being long cash and gold, until the "Fast Money" is washed out of the game. This note is not meant to embarrass Gartman, it's simply to hold him accountable.

Gold (via the GLD etf) was +1.2% today and the S&P 500 was down -1%. Being long Gold on a day like today is called alpha. Being long the market is called beta (Gartman is in print with something called a "watershed" call of being bullish on stocks). Being levered long the market is called a really bad idea.
KM

(chart courtesy of stockcharts.com)

MCD: Yep, Still A Short...

On 6/11, in the face of the sell side love fest with May sales results (its June), I wrote "MCD: Staying Short". Yep, Ronald was Red today, trading down -1.7% in what we call a negative alpha day.

See my Partner Howard Penney's Research Portal for his team's outstanding work on proactively managing towards what will happen at MCD next. Don't get caught looking in the rear view mirror at what has been.
KM

(chart courtesy of stockcharts.com)

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

WMT: Now It's On Sale...

On 6/11 I issued a note titled "WMT: Buy On Sale", and here we have it approaching our level in the $57 range. Patience pays. Buy Low, Sell High.

I am plenty short the US Consumer, and this is one of the few companies I can own who proactively managed their capex and expenses lower ahead of the downturn.

Wall Street might be shopping there soon too...

*Full Disclosure: I am long WMT again in my fund.
KM

(chart courtesy of stockcharts.com)

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:

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