It’s time to check in once again with our favorite hedge fund manager and trader extraordinaire, Cash McDash.

This week we find out about Cash’s most profitable trade of the year thus far, and also get the goods on an upcoming short. Without further ado, let’s get started.

JL: So Cash, tell us about your week. We’re looking forward to pulling back the curtain and scoping out some of your actual trades.

CASH: Yes indeed. This week actually started out on a pretty humorous note.

JL: Do tell.

CASH: On Monday morning I got a call from one of my more active underwriter contacts. This guy moves a lot of shares, but he’s usually a pretty mellow fellow, if you know what I mean. The Clark Kent type -- very even-keeled.

Anyway, this call was different than the usual. I could sense the urgency in his voice as soon as I picked up the phone. These mild-mannered guys can pitch like madmen when the pressure’s on.

JL: Sounds like someone’s butt was on the line, eh?

CASH: Yep. When product has to move, it has to move. These underwriters have overbearing managers just like in any other line of business, and marching orders come down from the top. When the manager storms in and says a certain chunk of inventory has to fly off the shelves NOW, it’s a go-go-go situation. I could tell that was the backdrop just by the tone of Steve’s voice.

First of all, the guy pretty much never calls me buddy. But this time it was “Cash, ol’ buddy -- what if I told you I had an idea that could juice your portfolio from here to next year? You have to be in on this!”

I may have only been half awake when I answered, but that tone put me at full military alert. This wasn’t my man Steve’s typical approach. And he did very little to mask the desperation in his voice.

JL: So what was he offering?

CASH: Ahh, some no-name convertible preferred offering. This thing had El Stinko written all over it. He knew it, I knew it, and he knew I knew it. We’re talking dog with a capital “D.”

JL: Sounds like he also knew you wouldn’t really be interested. So why was he pitching it?

CASH: Because the guy needed a little help from a friend. I mean, friends on Wall Street aren’t quite like friends anywhere else, if you know what I mean. It’s all about quid pro quo. I help Steve out of a jam from time to time, and he keeps me dialed in to the really hot deals. And quite honestly, I need guys like Steve to need me. What was that classic rock song? “I waaannnt you to want me, I neeeeed you to need me…”

JL: Whoa, okay. Stop singing. Right now.

CASH: Sorry.

JL: So you guys have kind of a symbiotic relationship. Like a flower and a bee.

CASH: You could say that. And your nature channel analogy is better than my singing?

JL: Whatever. The thing is, he needs you to buy what he sells, even if his goods aren’t so hot from time to time, and you need him to get a visibility window on the truly good deals.

CASH: Right. Steve was trying to move this convertible preferred deal that smelled like a Monday seafood special, and I agreed to do a few thousand shares just to help the guy out. He was deeply appreciative, and while no words were spoken, we both knew the score was now 1 to zip. He owed me one.

JL: Always a nice situation. And the payoff?

CASH: Getting there, getting there. It wasn’t long before Steve-O had the opportunity to make good. There’s a troubled bond insurer called MBIA. They’ve been all over the news lately as the latest example of derivative toxic waste infestation. You macro types have been all over them, in fact.

JL: Right, I know those guys. The “monoline” bond insurers. Warren Buffett just offered them a deal with sweet terms -- sweet terms for Warren Buffett, that is.

CASH: Yep, those are the guys. They’ve all gotten destroyed in the past few months. So anyway, MBIA -- stock symbol MBI on the NYSE -- decided to sell stock in the open market to raise desperately needed cash. The company was so desperate, in fact -- and the underwriters were so nervous about all the controversy -- that they priced the deal nearly 15% below the previous day’s close.

It was a classic case of what we talked about last week. The nervous underwriters were obviously undershooting the market, just to make double sure the deal got done so they could collect the fees. The price was definitely right, as old Bob Barker used to say, so I called in my favor with Steve and pounded on him for a good allocation of shares.

JL: So this was kind of a “blood in the streets” trade. How did it turn out?

CASH: Not too shabby, I must say. In fact, it was my most profitable play of the year so far.

JL: Nice!

CASH: Yeah. When a company is willing to literally sell a piece of itself at 15% below current market pricing, you can be sure there’s blood in the streets.

Now MBI is still just a trade for ol’ Cash, but with a great profit in hand after a few hours’ holding time, I’m a pretty happy camper. And this week’s action is a great example of the dance steps I take with my contacts, as well as my research, in order to stay on top of information flow and participate in strong opportunities on the long and short side.

JL: Speaking of the short side… last week you were practically salivating at the chance to play Whack-a-Mole with some of these overhyped IPO plays ripe for implosion. Got any of those on your radar screen?

CASH: You put it so tenderly. I’m not a twisted guy, I promise. Well, not too twisted anyway. I just love the competitive aspects of the short side. And yes, I’ve got a target in my sights.

JL: So what is it?

CASH: See if you can figure it out from this clue. Major league subprime bailouts, billions of dollars. Consumer defaults on overly aggressive credit lines, billions of dollars. Making money by going short… priceless.

JL: Umm, let’s see. “Priceless”… I know that tagline. Mastercard?

CASH: Give the man a cigar. Mastercard trades under symbol MA on the New York Stock Exchange. I’m sure all the readers are familiar with these guys. The stock came public in early 2006 and was a huge success. Not only has Mastercard grown earnings significantly above expectations, but the stock has performed consistently well. It was originally priced at $39 and now trades around $200 per share. It’s held by a lot of major mutual funds, growth investors, hedge funds and momentum traders.

JL: That all sounds great. Bullish even. And you want to short it why exactly? Why go against such a huge crowd?

CASH: Because that’s exactly what it is -- a huge crowd. Pretty much every player with skin in the growth-company game is on the long side of Mastercard. The company has been viewed as a safe haven in comparison to deep credit troubles elsewhere. Mastercard is also processing more and more transactions overseas, taking a cut of everything from apples to automobiles.

JL: But that’s more good news, not bad news.

CASH: Yes! And that’s my point. The wagers are in and the good news is already on the table. The logic for buying Mastercard is well known.

JL: So your bearishness on MA is sort of the opposite of buying when there’s blood in the streets.

CASH: Bingo. Anyone interested in Mastercard has already taken a position in the name. The stock is overowned and has become one of the new-age Wall Street darlings. It bears strong similarities with some of the other overhyped vehicles we’ve seen this decade.

Now, all that alone isn’t reason enough to pull the trigger. I have to see cracks in the armor on the fundamental side, too.

JL: Which you’re probably seeing now with the struggling consumer.

CASH: Give him a hand, folks. Consumers have started showing signs of fatigue, and delinquency rates are rising on credit card liability portfolios. Once people’s cards start getting declined in the checkout line at the grocery store, the company will begin to see transaction revenue decline. This sets up the investor base for sharp disappointment, when so far they’ve only been accustomed to upside surprises.

JL: So again, just to sum up very quickly: You like to short names that have run wild since their initial offering, with an enthusiastic investor base that’s been in place for some time. You look for flaws in the widely accepted thesis, and then exploit that misunderstanding by shorting.

CASH: Yes, that’s a pretty good summary. Thanks, professor.

JL: I’ll just ignore the professor comment. So again, then, how do you know when to pull the trigger? After all, you could have said the same thing about Mastercard months ago.

CASH: That’s where experience and a watchful eye come in. The key is to watch for cracks in the dam. Once the momentum and growth investors recognize the good times are going away for a while, they’ll start pushing and shoving on their way to the exits. Then you get a sell-off that takes a previous highflier to levels well below the most conservative valuations.

Also, since we’re talking about a potentially very large move, catching the first tick of downside isn’t all that important. I’m willing to miss the first five or ten percent of downdraft to be sure the dam has well and truly broken. For Mastercard specifically, I would look for a fresh downside breach of the $185 area on strong volume. That’s where my trigger finger gets itchy.

JL: Fair enough. So we’ll all be keeping an eye on Mastercard. We’ll have to circle back and check on it. As far as new IPOs in the pipeline, any exciting stuff happening?

CASH: You know how this market is. With the recent instability, the underwriters have put a lot of deals on ice. But those same deals can be ready to launch on very short notice when a window of opportunity opens up.

In terms of specifics, Visa -- another credit card giant -- looks like it could be one of the biggest deals for all of 2008. The big question mark there is whether they can roll it out before Mastercard starts to tumble. Given how well Mastercard did, the Visa deal will probably see strong demand if they can get it out the door fast enough. I’m watching that situation like a hawk.

JL: Interesting. Anything else in the pipeline?

CASH: Sure. You and I have talked about China in the past -- there’s some really interesting activity over there. Maybe we can get into that next week.

JL: Sounds good, amigo. Talk to you then.