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"He who will not economize will have to agonize."
-Confucius
For
those of us moving upward and onward in The New Reality, this past week
was a fantastic one. We spent time with our families, rang in a New
Year, and made some serious weekly returns!
However, getting
all excited about the "Re-flation" call, AFTER deflated balloons found
their first blast of air is not what I am in the business of doing. So
don't expect me to be buying high in hopes of "selling higher" this
morning. Hope is not an investment process. We'll let them buy what we
have readily available for sale. Sell high, buy low.
The pundit
patrol tends to mistake the definitions of "inflation" and "re-flation"
for one and the same. They aren't! In sharp contrast to 1970's style
inflation, this melting up the wall of consensus worry is simply a form
of asset class mean reversion. Over the course of October/November, as
US Treasury Bonds and US Cash became inflated kings, global equities in
Brazil to global commodity markets were primed to see their dose of a
fresh tire pumping.
While I do my fair share of tire pumping,
my goal in 2009 is to keep pumping yours. We want to "pump you up!" If
you weren't into the bearish notes that I had to painstakingly post at
this time last year, here's my gift to the bulls out there who ended up
being too bearish - after the worst stock market deflation since 1931,
the SP500 raced higher for another +6.8% weekly gain last week, taking
its cumulative "re-flation" from the freak-out "de-leveraging" November
08' lows to a whopping +24%. Aren't we allowed to be bullish, at a
price?
This bullish stock market party that's been rocking
since November isn't just local - last week the booty cam juiced it up
and took it global! On Friday, the Brazilians jacked their market's
music up to 40,244 decibels, closing up +7.2% on the day, taking its
cumulative ascent to +37% since it's October 27th low. Last night, in
Hong Kong they too rang the proverbial bullish gong, taking the Hang
Seng up another +3.5% on the session, adding to its cumulative +41%
"re-flation" run since October 27th! We remain "long of" both Brazil
and Hong Kong via the EWZ and EWH etfs.
No, no, no... this is
not inflation - this is "re-flation"... and it was all signaled by the
solid gold album we've been signing to you via the artists formerly
known as "prop desk" traders. As they were busy getting fired in
November/December, the US Dollar and Hank Paulson were as well. These
bullish American agents of change, alongside the largest rate cutting
party in global history, continue to provide the backbone for my
bullish stance on both global equities and commodities. That said,
right here and now, don't forget that every investment thesis has its
time and price.
Last night's "inflation" news in both Asia and
Europe had deflationary trends. This continues to prove that if you
hold a ball of negativity under water long enough, any hint of a
release of that sentiment-oriented pressure is going to create a rather
explosive move to the upside. Most, but not all of, Asian and European
stock market strength this morning is being buoyed by deflationary
Consumer Price Inflation readings in Italy, Spain, Thailand, and
Indonesia. Consider Thailand's year over year CPI reading for December
falling to +0.40%. That's not inflation folks - that's a bullish macro
data point - one that shot the stock market in Thailand up +6.4%
overnight!
Considering what's going on in the Gaza strip, one
might have expected the regional stock markets in the Middle East to be
concerned... not so much. Egypt is trading up +8.7% right now, Saudi
Arabia +2.6%, and the United Arab Emirates +7.8%. As sad as it may
sound, war is the mechanism that gets this region's most relevant
currency (oil) higher. Oil, incidentally, "re-flated" right past our
price target of $45.53 last week, closing up +23% on the week at $46.34.
Enough
of all this "re-flation" stuff, let's turn the dial to growth...
because that's where I am having a heck of a time trying to figure out
who was bearish at this time last year that is dance party bullish this
morning. Our pals over at Goldman are on the tape this morning
reiterating their "view" that "there is no obvious drivers of growth"
here in the USA. That was Jan Hatzius, their US Strategist, who was
cited in the #1 Bloomberg article under "Economy" this morning titled
"Engines of Recovery Flame Out." Were there plenty of compensation
structures on Wall Street that "flamed out" in 2008? You bet your
Madoff there were.... But, Jan, "C'mon Man" - it is 2009 this morning!
Our
call has been, and remains, that there is going to be a "MEGA Squeeze"
in the land of the US Consumer Discretionary stocks into and out of the
"no drama" Obama inauguration and stimulus plan events (see my Partner,
Howard Penney's, US Strategy note "Got MEGA" for more). MEGA not only
represents the quantitative reality of the squeeze that we have already
taken advantage of (the XLY, the SP500 Sector etf for Consumer
Discretionary, is up +39% since the November 20th capitulation low),
but it stands for Mortgages, Employment, Gas, and Assets. Don't
underestimate that the last of the letters in that acronym, Assets, is
THE DRIVER of US Consumer Confidence, and US growth. US stock prices
are some of the most relevant Assets on the US Consumer's balance sheet
- again, they are up +24% since November!
Can someone do me a
favor and send this note, alongside Howard's Strategy piece, to the
fine folks at Goldman. Jan needs to be aware of the "obvious drivers of
growth", and we'd like to throw the guy a bone.
Don't buy the
SP500 at 931. Wait for a correction. Our buying range remains what it
has been (884 on the SP500 or lower). Buy low, sell high, and remember
what Confucius says, "he who will not economize" and be patient on
price, will ultimately "agonize."
Have a great week.
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