As a reminder this is what “He Who Sees No Bubbles” said recently…


“Elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.  “The Federal Reserve is committed to keeping inflation low and will be able to do so.”


-          December 7, 2009 - Fed Chairman Ben S. Bernanke in a speech to the Economic Club of Washington


The US Dollar has strengthened over the past few weeks and is strong again today.  Today’s PPI reading and Wednesday’s CPI could be the river card that reveals why?  We have been calling for inflation to return and that time is now. 


The consensus estimates for the seasonally-adjusted November CPI is 0.4% according to Bloomberg versus 0.3% in October.  Given the implied relative strength of gasoline and food prices in the November retail sales data, an upside surprise to consensus is a better than average possibility.


A consensus report would boost year-to-year CPI inflation from minus 0.2% in October to roughly a positive 1.9% in November.  The November CPI data will officially end the recent period of formal DEFLATION.


Inflation is moving lower?


Howard Penney

Managing Director




Charting Bernanke's Vision

Howard and Matt have a post coming out later today that You Tube’s the Fed Chief’s views on US Consumer Price Inflation. As a teaser, here’s a chart of He Who Sees No Bubbles (Bernanke) vision impairment.


Note that in 2006 (when this chart bottomed) neither Bernanke or Greenspan could foresee the mountain of Producer Price pressure that were on the horizon. I suppose it’s hard to see the easy money price bubbles that those engulfed by their own predetermined Doctrines create.


Buyer of Perceived Wisdom that the Fed won’t have to raise rates in 2010 beware. At this stage of the game, the data doesn’t lie – people do. Ben Bernanke is going to be playing some political football with a +2.7% year-over-year PPI report.


The US Dollar and bond yields are now breaking out to the upside on both an immediate term TRADE and an intermediate term TREND basis.


We remain short the SHY (short term Treasuries).



Keith R. McCullough
Chief Executive Officer


Charting Bernanke's Vision - USPPI



The 2010 MGM outlook looks bleak and the valuation rich by historical standards. Does that mean it's a short right here?



We're not so sure.  We've written about the likely low CityCenter return on investment and more importantly, the potential for serious cannibalization (see CITYCENTER: A GROWTH OR DONNER PARTY FOR MGM?, 11/23/09).  The valuation at 11.5x 2010 EV/EBITDA looks high especially relative to the historical range of 7-11x.  Moreover, cost of capital is likely going higher as MGM will be forced into refinancing much of its debt in 2010.  We think some form of equity issuance (convertible or straight equity) is likely. 


That's a compelling short story, no?  The problem is that shorting MGM into the CityCenter opening this week is consensus.  Look at the following chart that measures sentiment and short interest among select gaming, lodging, and leisure stocks.  MGM sits farthest down the sentiment line, which measures average analyst rating along the vertical axis and overall short interest along the horizontal axis.  MGM maintains the highest short interest and one of the lowest average ratings in this universe.


MGM: THE CONSENSUS SHORT - sentiment and short interest


The sentiment surrounding MGM could hardly be worse.  Even after a big two day move, the stock is 20% off its recent high in an otherwise strong stock market and the short interest has been climbing.  Any encouraging data points surrounding Q1 2010 room rates or indicating a solid opening of CityCenter could spark a short squeeze.  Don't forget that MGM has extra incentive to spin the CityCenter opening and market absorption favorably.  After all, 2010 will be a year of financing and fundraising. 


So far, we don't have any positive data points to report.  Indeed, CityCenter is still pricing rooms at a discount to the peer group for January and MGM is offering attractive promotions for the Aria and now Bellagio (see below) for Q1.  However, shorter seller beware.


MGM: THE CONSENSUS SHORT - bellagio offer

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Again! Higher Highs

“Success is how high you bounce when you hit the bottom.”

-General George S. Patton


In this game, there is no better measurement for success than the rate of return on an investment. Undoubtedly, people who live their lives making excuses and pointing fingers will take issue with that; particularly on Wall Street, where some people like to keep a relative score. In the arenas of professional sport however, the score is absolute. I think that professional accountability model has higher standards.


When considering investment opportunities, I tell my team that they can be one of three things: Bullish, Bearish, or Not Enough of one or the other. I, for one, have not remained Bullish Enough on US Equities into yesterday’s closing YTD high. That’s no one’s problem other than my own.


I made multiple sales at the YTD highs established between November 17th and December 3rd (multiple tests of SP), but was relegated to watching us make a higher-high yesterday from the cheap seats.


Higher-highs, in my macro model, are bullish until they aren’t. One day, we can all look back at the YTD high for what it was – an event in the rear view mirror. Tops are processes, not points. If you need a Wall Street/Washington economist, strategist, or academic to give you a replay of it all, we are choke full of those in this country. They are called revisionist historians.


My role as a global macro risk manager is to proactively call out probable outcomes, before they occur. Sometimes I am wrong. Sometimes I am right. We called the topping process in both Gold and Oil this year. We also called the bottoming process in short term Treasury yields. At the same time I feel shame for missing yesterday’s SP500 ringing the register at 1114.


Yesterday’s higher-high in the SP500 coincided with a higher-high in one other major global equity market – Brazil. That’s the only country we are currently long on the International Equity side of our Asset Allocation. It’s the only major country index, other than the USA, to hit a higher-YTD-high in the last few weeks. The rest of the world’s Great REFLATION trades have started to unwind.


Brazil’s stock market bottomed just inside of a week before the US stock market did back in March. Since, the EWZ (Brazilian ETF) is up +146%. Meanwhile, the SP500 has tacked on one of the most expedited 9 month moves ever (+64.5% since March the 9th). Yes, ever is a long time. And, yes, the absolute score here has been a monstrous success for those who didn’t buy into the Groupthink Inc. fear-mongering. “Success is how high you bounce when you hit bottom.”


Today, my risk management task isn’t to live in some of the mistakes I made yesterday. It’s to wake up, smell the coffee, and make moves based on the most probable outcomes for tomorrow. Today, is just another opportunity to play the game that’s in front of me.


My favorite scene in the movie Miracle is when Kurt Russell lines the boys up on the goal line and makes them skate until they puke. “Again” … “Again” … “Again”…


Over and over again, I have learned through the lessons of my own mistakes that chasing higher-highs doesn’t work; particularly when they are not confirmed by the rest of the market prices in my global macro model. Here are some risk management thoughts for you to consider before you hit the ice out there this morning:


1.       China’s A-Shares closed down -0.86% overnight, failing to make a higher-YTD-high

2.       Japan’s stock market was down -0.22% again overnight; it remains the worst performing major equity market in the world YTD

3.       Hong Kong’s H-shares were down another -1.2% overnight; they have recently broken their immediate term TRADE line, making lower-highs

4.       Greece, turned sharply lower again this morning after their PM’s assertions of budget cuts were voted on negatively by Mr. Macro Market

5.       UAE resumed selling its stock market down another -1.5% after 1 up day of hope that Dubai’s debts for 2010, 2011, 2012 don’t matter

6.       Russian stocks continue to lose price momentum, having recently broken their immediate term TRADE line, and now making lower-highs

7.       Oil is now broken from both an immediate term TRADE ($76.91) and an intermediate term TREND ($74.30) perspective

8.       Gold has broken her immediate term TRADE line of $1148/oz and looks ripe to continue making a series of lower-highs

9.       US Dollar Index is now breaking out of its intermediate term TREND line base ($76.31), making a 2-month high, and a series of higher-lows


“Again”… “Again” … “Again”…


Its 630AM right now and I’m just getting started here. This is a short list of risk management factors that my model has flashed to me in the first few hours of what we call the grind. I know my style and process is not for everyone, but you know that I know it has edge. Closet indexers don’t grind.


The only way to solve for making a mistake like I have in not being long the SP500 at the YTD high is to find a different way to win this morning. Real men and women of this gridiron know that this is all that matters. Not losing is always the highest probability position to be in if you want to start winning.


My immediate term line of TRADE support for the SP500 is -1.5% lower at 1098. I’ll buy and cover US stocks if we hold that line. A strong US Dollar is going to lead this country to higher real-rates of return on American fixed incomes. It’s also going to expedite the exit of losing players who we need to get off the ice. I look forward to that. “Again”!


Best of luck out there today,






VXX – iPath S&P500 Volatility For a TRADE we bought some protection at the market's YTD highs by buying volatility on 12/14.


EWZ – iShares Brazil As Greece and Dubai were blowing up, we took our Asset Allocation on International Equities to zero.  On 12/8 we started buying back exposure via our favorite country, Brazil, with the etf trading down on the day. We remain bullish on Brazil’s commodity complex and believe the country’s management of its interest rate policy has promoted stimulus.


XLK – SPDR Technology We bought back our position in Tech on 11/20. Rebecca Runkle has an innovation story in Mobility and Team Macro has an M&A story in our Q4 Theme, the “Banker Bonanza”. We’re bullish on XLK on TREND (3 Months or more).


GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.  


CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.


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. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.





EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.


XLI – SPDR Industrials We shorted Industrials again on 11/9 on the up move as the US market made a lower-high.  This is the best way for us to be short the hope of a V-shaped recovery.   

XLY – SPDR Consumer DiscretionaryWe shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30 and 12/2.


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. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.

Required Retail Reading: NKE: FX Context


December 15, 2009





With the USD putting in a near-term bottom, that might seem naturally bad for Nike. But the delta remains positive from Nike's last EPS report -- even though the stock has not moved and estimates have bottomed.



With a 4% move in the dollar since the recent November 24th low, how could we NOT acknowledge this as it relates to Nike? A 4% move might not seem like much in the grand scheme of things -- but lets not forget that we're talking a currency here, not a stock. 4% over 2 weeks is big.  With over half of its sales coming from outside the US, a stronger dollar is clearly bad for Nike over a shorter time period.  I stress 'near term' as a strong US Dollar is ultimately going to lead this country to higher real-rates of return on American fixed incomes. It's also going to expedite the exit of losing businesses who don't have much of a reason to exist, which is good for companies like Nike.


A very important near-term point to consider is that since Nike's last print, the currency delta is a net favorable one in spite of the fact that we've seen recent strength. The chart below shows what the FX outlook was three months back vs. today (our analysis weights forex based on every relevant country where Nike does business).  


Required Retail Reading: NKE: FX Context - NKE FX 12 15 09


On top of that, add the fact that this is the first real quarter where Nike has some SG&A runway due to its layoffs earlier this year (though much will be reinvested), downward earnings revisions have (justifiably) slowed materially, and we're now only 1-2 quarters away from when we think both futures and EBIT should improve substantially as Nike starts its next 'burst' of growth. Package all that together and its getting tougher to find a reason not to like this stock. This should be a winner in 2010.




  • In a survey based on the volume and number online posts, as well as the overall tone of the posts (positive/negative),, Target, Nike, and Wal-Mart were the retail brands included in the top 10 for 2009. The top 10 list compiled by Zeta Interactive, is often used as a measure of which brands or companies are utilizing social media to effectively generate positive “buzz” surrounding their brands.
  • This is the last week to take advantage of the broad-based free shipping offers in order to deliver gifts by December 25th. Many online retailers will end their free-shipping offers by December 18th, which is also the last day retailers will allow orders guaranteeing Christmas delivery for those using free shipping options. 62.3% of retailers will expire their holiday shipping offers exactly one week before Christmas.
  • While conventional wisdom may suggest that the premium denim trend has passed, the ability to sell privately owned premium denim brands may still be a possibility. West Coast based denim company, J Brand Denim is reportedly in the process of being sold. The rumored sales price is $90 million with the buyer rumored to be a private equity firm.




Barneys' Extended Temporary Lifeline as Abu Dhabi Bails Out Dubai World - As the retailer’s ultimate parent company, Dubai World, on Monday revealed a $10 billion lifeline from Abu Dhabi, speculation continues to swirl over Barneys’ future and whether it will be sold. While sources said a sale isn’t imminent, they’re not ruling it out down the road. There have been signs of a pickup at Barneys, with business up 7 percent in October, although sales slid back into the negative column in November, approximately in the high teens. Factors and vendors continue to show support and ship with extended payment terms. For now at least, all of this enables Barneys to put off a sale, a bankruptcy or some other restructuring, and hold off on announcing a strategy for the future until after the luxury chain digests its holiday business, according to sources. The state of limbo is heightened by the fact that Barneys has strangely operated without a chief executive officer since July 2008, and there is no one in line for the job. <>


Kohl's Said Eyeing Broadway Site - Kohl’s Corp. is stepping up its search for its first Manhattan location. “They were in town last week,” said one real estate source familiar with the property search. The focus seems to be on 1775 Broadway, which is being fully renovated by Moinian Group, the landlord, and is located between 57th and 58th Streets and between Broadway and Eighth Avenue, just south of Columbus Circle. Comp USA was the last big-box retailer on the site. “The building has a pretty good size footprint. Most of the space is vacant. They could assemble a block of space over 100,000 square feet,” which would consist of three levels at around 33,000 square feet each, the real estate source said. Typical Kohl’s stores contain 80,000 to 90,000 gross square feet. WWD first reported in August that Kohl’s was scouting Manhattan and Broadway. Crain’s New York and The Real Deal reported last month that 1775 Broadway was the focus.  <>


Timberland launches campaign to make people aware of climate change - Timberland has just launched a global campaign to get citizens mobilized. The slogan is "Don’t tell us it can’t be done!" The aim is to impact the 192 governments attending the UN Climate Change Conference taking place in Copenhagen. Timberland’s proposal is aimed at having the greatest number of governments sign an agreement outlining the norms for greenhouse gas emissions. The initiative also encourages citizens to become involved in this public debate via a Global Action Center and have an active presence in social networking sites such as Facebook, Twitter, YouTube and print media as well as in all its outlets throughout the world. <>


Adidas names a head of global e-commerce to accelerate its online sales - Athletic footwear manufacturer Adidas Group is creating a new e-commerce team alongside its existing wholesale and retail units. To lead the new initiative, Germany-based Adidas has selected company veteran Christophe Bezu, who since 2003 has been the CEO of Adidas’ Reebok brand in the Asia-Pacific region. Bezu, who also was recently named the company’s managing director for Greater China, will head up a global project called Excellence in e-Commerce. He will report to Herbert Hainer, Adidas Group CEO and chairman, who will chair the steering committee for the new e-commerce group.  <>


Israel Departs Sears - Sears, Roebuck & Co.’s top apparel executive, Craig Israel, has left the company. Israel was president of apparel and recently began reporting to John Goodman, who last month joined Sears Holding Corp., the parent of Sears and Kmart, as executive vice president of apparel and home, a new post. A spokesman for Sears said Monday that with Israel’s departure, Goodman will serve as interim leader of the Sears apparel business until a successor is found. Goodman is also serving as interim president of Kmart Apparel until a permanent officer is named to that post.  <>


Saks Ends 'Poison Pill' Provision - Saks Inc. on Monday ended a “poison pill” provision in its shareholders’ rights plan that it had adopted last year to prevent a takeover. The luxury retailer enacted the condition, meant to kick in if a single investor held more than 20 percent of its shares, in November 2008, shortly after Mexican billionaire Carlos Slim Helú upped his stake in the firm to 18.3 percent. Chairman and chief executive officer Stephen I. Sadove said the rights plan had served its purpose and was no longer necessary because the firm increased a change-of-control threshold to 40 percent when it altered its revolving credit agreement on Nov. 23. In December 2008, Saks distributed a preferred share purchase right for each outstanding share of its common stock. The right would have only been redeemable if an investor acquired 20 percent or more of the firm’s shares and was designed to dilute such an acquirer’s stake. In a Securities and Exchange Commission filing at the time, the company said it had done so to “protect shareholders from coercive or otherwise unfair takeover tactics.”  <>


Korean Retailer Who.A.U. to Open in N.Y. - One little-known youth-oriented foreign retailer trying to break into the U.S. market is taking over the retail space of another little-known youth-oriented foreign retailer that failed in its bid to enter the American market. Who.A.U. California Dream, a South Korean brand with two mall stores in the U.S., will open a 12,000-square-foot multilevel flagship at 22 West 34th Street between Fifth and Sixth Avenues. Kira Plastinina, the Russian brand designed by the teenager of the same name, was the last tenant to occupy the space. Kira Plastinina shuttered the location in December 2008.  <>


Kahn Named Wet Seal Chairman - Foothill Ranch, Calif.–based The Wet Seal Inc. announced the retirement its chairman of the board, Alan Siegel on Dec. 14. Harold Kahn, another member of Wet Seal’s board, has been named as his replacement. Siegel served the young woman’s retailer for 20-years. He decided to resign because of his age. He will be 75 in January. He also will devote more of his time to working as the executor of the Wade F.B. Thompson Charitable Foundation based in Niantic, Conn. <>


Online Shoppers Moving Away from Credit - The quest for fiscal fitness is leading online shoppers to increase their use of cash and debit cards even as issuers’ own policies and consumers’ desire to avoid debt have discouraged credit card use. According to a survey of more than 2,000 U.S. Internet users conducted in October by comScore Inc., 65 percent of respondents have changed the way they pay for items online because of concerns about the economy, down from 67 percent in the previous year. Of those who indicated they had altered their behavior, 42 percent said they are more likely to use cash, versus 50 percent in the 2008 study, and 40 percent said they are more likely to use a debit card, up from 34 percent. Twenty-three percent said they were more likely to use a credit card, up from 18 percent last year, and 13 percent said they had begun to consolidate spending to fewer credit cards, up from 12 percent. The percentage saying they had spread their spending among a greater number of cards advanced to 6 percent from 5 percent.  <>


Online holiday spending is up 3.4% compared to a year ago - Shoppers have spent nearly $19.94 billion online this holiday shopping season, which began Nov. 1, a 3.4% percent jump from $19.28 billion a year ago, reports comScore Inc. Of the 10 largest shopping days on record, four have taken place this year (in $mm USD):

  • Monday, Nov. 30, $887
  • Tuesday, Dec. 1, $886
  • Thursday, Dec. 10, $852
  • Tuesday, Dec. 8, $828

Online sales shot up 4% last week when consumers spent more than $800 million on two separate days, says comScore. Since comScore began tracking e-commerce spending in 2001, it has recorded 13 spending days that have eclipsed $800 million. <>


CIT Sweetens Small Business Loans - CIT Group Inc., back after fewer than six weeks in bankruptcy court, said it would waive a $1,000 packaging fee on loans approved under a Small Business Administration program. The lender, which last week emerged from bankruptcy as a public company, said it would waive the fee on the federal agency’s 7(a) loan applications through March 10. CIT previously committed $500 million to support government-guaranteed loan programs for the sector. “The small business sector remains a key driver of job creation in America,” said Chris Reilly, president of the lender’s small business unit. “These recent announcements reflect our commitment to bringing much needed credit to this sector, and to helping small businesses access the capital they need to weather this difficult economic environment.” CIT said small businesses employ nearly 59 million Americans. <>


The Macau Metro Monitor.  December 15th, 2009




The People’s Bank of China yesterday relaxed restrictions on yuan transactions for Macau residents.  The central bank said Macau residents would soon be able to exchange the equivalent of 20,000 yuan (HK$22,704) per person per day, up from 6,000 yuan.  Macau residents will also be allowed to write yuan-denominated checks for purchases in Guangdong.  The PBOC announcement of the yuan business expansion comes as Beijing prepares to celebrate the 10th anniversary of Macau's handover to the mainland on December 20.




Hong Kong Chief Executive Donald Tsang Yam-kuen has said that the government will try to keep toll rates for the Hong Kong-Zhuhai-Macau Bridge as low as possible.  Tsang said the three governments would continue to work together to ensure the bridge was properly managed.

Daily Trading Ranges

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