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Who Is Running South Korea?

In terms of rate and scope of change, South Korea remains one of the more fascinating economies in the world these days. Under their new President, Lee Myung-Bak, they have taken a very proactive approach to monetary and fiscal policy. This morning the Bank of Korea raised rates to an 8 year high of 5.25% in order to fight incipient inflation.

Lee was actually raised in Japan by his Christian mother. He was born in 1941, and didn't return to Korea until after the war in 1945. He attended Korea University, and was thrown in jail for demonstrating against the Korean President in 1964.

In 1965, Lee went on to a long successful business career at Hyundai, where he ultimately served as its Chairman, 27 years later.

After his corporate career, Lee entered political life and became the mayor of Seoul in 2002. Ultimately, he won the Presidential Election at the end of 2007, and is now running the country in as aggressive an economic style as we have seen from a legacy Asian economy in years.

He adheres to what he calls his "747" plan. The main aspirations within that plan are maintaining a +7% annual GDP growth rate until he reaches his goal to become the world's 7th largest economy.

What's most interesting to me about this man is his proactive management of the economy. Whether its firing his finance ministers, defending his currency, or moving aggressively to suppress domestic wage inflation, he is not sitting on his hands waiting for the economy to wag his tail.

Our Eyes are on Lee's South Korean embryonic test to expand capitalistically. The KOSPI Index has yet to flash a buy signal yet...

Stay tuned.
KM

(dates, facts, etc cross referenced with www.wikipedia.com @ http://en.wikipedia.org/wiki/Lee_Myung_Bak)
  • South Korean Flag

Beware of the (E) in the US Consumer RIPTE Model

Weekly jobless claims were reported higher yet again this week at 455,000 claims, up from last week's 448,000. Since mid July, the "Trend" here in US Employment has deteriorated materially. Within our RIPTE framework, "E" (Employment) is taking over as the most relevant when considering US growth, or lack thereof.

This is not only the highest nominal reading we've had in Q3, but the highest we've had since March of 2002. To dismiss it as another "negative" data point that the market has already discounted would be analytically reckless. The 4 week avg is now 420,000, and I think 500,000 is in the cards within the next 3-6 months.

KM

The Favre Trade

The “Trade” in the US market still looks as good as that for hopeful NY Jets fans this morning, after acquiring Brett Favre. The problem, of course, is that these are short term “Trades”. Favre is 38 years old, the bull market is 25 years old - we are closer to the end of their respective runs than new beginnings.

Favre is one of my favorite athletes. He’s real and he leaves it all on the field every day. The problem is that (for an NFL player) he is old. Not as old as John McCain, but old. The latest market “Trade” higher is more of the same old nonsense. Find a bullish narrative, and ride it. “Drill, drill, drill” – bring oil prices down, and ride John McCain and his clean-coal fueled All-American Harley into the US election. He’ll salute the troops, flip the International community the bird, and save our stock market from Obama ‘s proposed socialist salvation.

Didn’t you hear? Obama is apparently down and out like Favre used to be when he was addicted to pain killers – ask Larry Kudlow, who is turning into the other side of the Lou Dobbs trade. “Drill, drill, drill – Go Goldilocks! Go Johnny Mac!”

The political leadership in this country, and the partisan media who spin it, is plain scary. Lou Dobbs on the Left, Larry Kudlow on the Right. They are both metaphors that reflect more of the same – a hurried sound bite culture that hears, but rarely listens. Charge the blackberries, forget the books. It’s manic, and it transcends how Americans have been trained to “invest”.

The S&P 500’s intraday high yesterday was 1291. The high end of my trading range was 1292 – close enough. As the math changes, I do. For this morning’s open, the high end of my trading range moves to 1299. If we are blessed with that number, I’ll happily sell into it, and go to 95% cash.

I can be bearish on the US stock market’s “Trend”, but still be bullish on some of our fundamental long ideas. Yesterday, Brian McGough nailed this Ralph Lauren (RL) long call. The day prior it was Howard Penney getting Brinker (EAT) right; and the day before that Todd Jordan defied the shorts with the call to own Leapfrog (LF). There are no rules stating that “Macro Guys” can’t pick stocks. This is what makes this game great.

Currently, the best macro short call that I have been pressing short is Japan. I’m short Japan via the EWJ (etf) and names like Toyota (TM), which printed a down -28% year over year net income report in Asia overnight. In the face of a bullish “Trade” here in the US, the Nikkei got smacked again for another -1% down day, and the Japanese Yen moved to fresh intermediate term lows of 109.44. Stagflation is a macroeconomic circumstance that you want to be short.

In the face of the world’s largest car maker imploding their bottom line, the world’s largest insurer, AIG, is trading down -8% pre-open, after printing a $5.4B loss. Taiwan’s exports for the month of July slowed to, get this, 8% year over year, versus +21% in June! No, that’s not good for the “it’s global this time” Asian growth story. The Taiwanese dollar chart rivals that of the Japanese Yen, having its biggest down day in 3 months, extending its streak of daily losses to eight.

It is getting more global out there, and Brett Favre greyer. The only mania that will be left after all these fundamental realities are absorbed may very well be manic depression. Be careful out there at the high end of my trading range.

Good luck,
KM



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MGM MANAGEMENT: SOOTHSAYERS OR HOPEFUL AGNOSTICS?

MGM got some investors juiced and shorts scared with its conference call commentary yesterday. Management proclaimed Q2 the trough and declared that Q4 would show improvement and be the strongest quarter of the year. Forward bookings were cited as driving the Q4 and 2009 optimism. What? Visibility past 1 quarter has been notoriously cloudy in this business, even in boom periods. Looking back just a few quarters shows the fallacy of these predictions. During the Q3 2007 conference call, management declared that into 2008 “you should expect to see a fairly substantial increase in revenue and a resulting improvement in margins”. Check out the following chart to see how that forecast worked out. I’m not highlighting this to call out management for being wrong. I’ve been wrong many times. Rather, I’m simply suggesting that management doesn’t know what Q4 will bring.

Booking windows in Las Vegas are short even when times are good. They are even shorter in a consumer slowdown. Strip casinos, especially high end properties like Bellagio and MGM Grand, generate much of their profits in the last week of the year. That week is notoriously unpredictable. Unless management discovered some groundbreaking forecasting tool, I’m not buying it. Just as they lack visibility into Q4, I also cannot see that far. However, we are data dependent here at Research Edge and the data supports continued weakness. Hotel and slot trends are moving in the wrong direction and critical factors such airline capacity, airfares, travel, consumer spending trends, etc. suggest that they will continue to do so.

MGM's last prediction didn't exactly work out

Hershey Swirls (HSY), For the Shorts...

HSY had the sharks jumping today, closing +7% on good volume. This stock is up +24% since the "Event Driven" community blew it out into their June month end (HSY didn't get LBO'd, remember).

I've been riding the highway to Hershey Park for the better part of the year, and I've taken my share of emails from the folks who are probably covering it up here. If you've been on the strong side with us, I think you sell some over $40, and buy it back at $38.37.

Buy Low, Sell High.
KM
  • HSY: buy it back closer to $38.37
(chart courtesy of stockcharts.com)

Ralph Lauren (RL): This Short Squeeze Isn't Over

Shame on me and shame on you. When I first started working with Brian McGough, I was short this stock. Today, our Advisory Clients are long it, and the shorts are still talking about the height of Polo shirt piles at Bloomingdales.

Qualitative short thesis’ will get you about as far as I can throw you in this business, particularly when you're shorting a stock that has 18% of the float sold short like RL does.

Closing +7% today on 6M shares traded is your wakeup call. Next stop on this bus is $66.84, before it takes a breather, then charges to $71. Great quarter, and great call by McGough.
KM
  • RL is going to $66.84, then $71.11
(chart courtesy of stockcharts.com)

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