This note was originally published at 8am on December 31, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Do it. Nothing is easier.”
-Achilles (Troy, 2004)
Nothing is easier than wiping all of your screens clean at the end of a long year.
Yesterday, year-end market prices were booked in major markets like Germany (+16.1%), Spain (-17.4%), and Japan (-3.0%). Overnight we got the rest of Asia to submit their scores as well. No matter where we go in the world this morning, here are the year-end results:
The Top 3 stock markets so far are Sri Lanka, Indonesia, and Latvia. The Bottom 3 are Spain, China, and Italy.
On the long side, we’ve been bullish on Indonesia in the Hedgeye Portfolio but we sold it way too early this year. We certainly didn’t get Sri Lanka or Latvia right on the long side either. We still have a 9% long position in the Hedgeye Asset Allocation Model to Germany.
On the short side, I think we managed global macro risk pretty well. At the beginning of 2010, two of our top 3 Macro Themes were Chinese Ox in A Box (bearish on China) and the Sovereign Debt Dichotomy (bearish on Spain, Italy, and Greece).
On the US stock market side, while there’s been much bonus-season oriented fanfare heading into year-end, the SP500 underperformed more than half of the world’s stock markets this year. It also underperformed Commodities.
This is not to say that a +12.7% annual return in the SP500 is bad. It’s good.
It’s just not great. It’s below both of these important asset class averages:
- MSCI All World Index = +13.3%
- CRB Commodities Index = +15.2%
Being long US stocks beat being long the US Dollar. But don’t forget that from June to November (when we were short the US Dollar) that wasn’t hard to do. That’s when the US Federal Reserve adopted it’s explicit policy to inflate. In doing so, it debauched the world’s reserve currency and put inflation expectations right back to where they were before Bernanke said he saw no inflation with $150 oil in 2008.
Actually, calling it 2008 style inflation isn’t fair. Nothing Is Easier than seeing 2011 style inflation now. Copper prices are hitting all-time highs this morning (higher than the 2008 levered-long highs) at $4.42/lb.
What will be most interesting to me in 2011 is whether or not inflation starts to matter to US Equity markets like it has started to matter to global equity (China, India, and Brazil, etc) and bond markets since The Ber-nank opted for Quantitative Guessing (QG2) in November.
While I’m not a big fan of being locked into “best ideas” from January 1st to December 31st of a calendar year, I am a big believer that you need to wake up every morning accepting that uncertainty will dominate every day in between. Nothing Is Easier than doing that.
My immediate term TRADE lines of support and resistance in the SP500 are now 1254 and 1265, respectively.
Best of luck out there in the New Year,
Keith R. McCullough
Chief Executive Officer