prev

TYPO: SP500 Levels

1022 was the 3pm price, and 1004.33 is our buy/cover for a "Trade" line.

My typo, appologies.
KM

Refreshing Our SP500 Trading levels for the close...

As our business grows and we move to more tailored Macro relationships with our core constituency of RE Macro clients, we need to continue to improve how we express our investment process.

See the chart below. The code is simple: red is bad, green is good.

Our overhead "Trend" line for the SPX is 1196.04.
Our buy/cover for a "Trade" line for the SPX is 1104.33.
Our sell/short the bounce line for the SPX is 1127.55.

Our quant models refresh every 90 minutes. These levels incorporate a cash price in the SPX of 1222 at 3PM.

Be patient, but realize that there is plenty of performance to pick up if you trade this volatility well. Process trumps emotion.
KM

Morgan Stanley down -31% right now; but where are the evil doers?

At $16/share, this is a lower low than the price we saw when John Mack had his Braveheart call to arms (and meeting with Chris Cox) against his prime brokerage clients and short sellers at large...

Could institutions who are long the stock be selling it? Shhh... don’t tell anyone.

As MLK said, "a lie cannot live".
KM

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%

Helicopter Ben flies again...

Ben Bernanke remains boxed in by the politicized nature of his role. The Fed Funds Futures market is begging for rate cuts, so he is shamelessly signaling that he will deliver on those market expectations. Hence the “Helicopter Ben” nickname. He is who he is. History will not look back on his legacy kindly.

Bernanke is finally right, the domestic “inflation outlook has improved somewhat”, but do not mistake this for Bernanke being early with that call. He has been calling for an inflation slowdown since 2006. In this speech, he is also moving back to the rhetoric that “risks to downside growth have risen.” Combined, these messages on inflation and growth, in English, mean that Bernanke is definitely going to cut interest rates on October 29th, 2008.

In the end, I think the only way out of this mess is to raise rates.

I understand that's not consensus, but I also understand that my macro calls haven't been for the last nine months. I am not making this call for the sake of being contrarian. I am making it because the only way for a capitalist who is flush with cash to earn a return is to give him/her a rate of real return. Cutting nominal interest rates below 2%, effectively re-creates the Greenspan scenario of 2001-2003, which gave birth to this mess of a leverage cycle to begin with.

KM

This Australian Banker Gets It

This morning's move by Aussi central bank chief, Glenn Stevens, to cut interest rates by 100 basis points was one that should be applauded, globally. Not only was he the most objective in taking his target rate up during the global asset inflation mania (see chart, he raised rates since 2001), he is now one of the few who can proactively manage global asset deflation from a position of strength.

Here are 2 charts: CPI & Target Rates for the past 10 years; and the ASX 200 (AUD&USD).

Keith McCullough and Andrew Barber
Research Edge LLC

Bank of America (BAC): It's a shame that we can't short it...

Bank of America has cut short both its dividend and credibility. Too bad Chris Cox, the SEC, and 'Investment Banking Inc.' is banning us from pricing this stock efficiently...

When grocer Amadeo Giannini founded the Bank of Italy in a saloon in San Francisco at the start of the last century he had limited capital with which to take on the established banking community. It was a crisis, the great earthquake of 1906, which allowed Amadeo to build the reputation that defined his franchise by providing liquidity: he lent to small business owners that needed to rebuild when other banks couldn’t or wouldn’t. Later, after several mergers and a name change to Bank of America, Giannini again found opportunities to grow in crisis –this time the great depression, when he again provided loans at a time when others were unable or unwilling. Ingenuity, hard work and a willingness to take calculated risks on borrowers who were worthy made him a giant of the US credit market. When he died just in 1949, Bank of America was the largest bank in the US.

Today the enormous financial institution that bears the name Bank of America has little resemblance to Giannini’s bank. In the current crisis, instead of being a steadfast lender providing liquidity, it stands in line with the other Wall Street supplicants seeking capital injections from the equity markets and government handouts. The name on the door may still commands respect on Main Street -during the flight to quality spurred by bank failures in August and September BAC’s retail deposits swelled by nearly 10%, but make no mistake: this is no longer Amadeo Giannini’s bank, this is Ken Lewis’s bank –large, generic and weak. With yesterday’s announcement of a 50% dividend reduction and the need to raise $10 billion in a common stock offering, Lewis is starting the long process of shoring up the balance sheet while preparing to digest the massive Merrill Lynch acquisition. It remains to be seen if $10 billion will be sufficient or if Lewis will need to return to the trough again.

Prior to the Merrill announcement, BAC had seemingly abandoned the investment banking and brokerage business. Little or nothing now remains of the firm’s only marquee investment franchise, John Sandelman’s team of “boy wonders” that made NationsBank a risk trading power house in the mid 90’s before the merger with BAC. Lewis sold the last vestige of the NationsBank platform -its prime brokerage unit, to BNP Paribas’ Todd Steinberg (one of Sandelman’s original traders) for $300 million in June. The Merrill Acquisition therefore sits as an abrupt reversal of strategy, backed by the logic that Merrill’s retail focus will be better suited to a financial supermarket model than a trading franchise was. When the deal was announced the same Lewis that had abandoned organic efforts just months before gushed at the opportunity to buy the enormous floundering brokerage and re-enter the market. “We would have been frustrated for quite some time, and this just changes that. I like it again.”

Lewis may suddenly like his bank again but the market doesn’t. As of the close yesterday BAC was trading below our short term trade level of $32.78 and our long term trend line of $35.23 (see the chart below) and selling pressure on the bank’s shares intensified in Europe overnight.

When the great Amadeo Giannini died, it is reported that his estate was valued at a respectable, but miniscule by bank CEO standards, $500,000. This was part of his way. As a manager he abhorred excessive executive salaries and as a person he was decidedly non materialistic. Ken Lewis –whose initial claim to fame was his focus ending the non-stop roll up strategy employed by his immediate predecessors and better focus on risk, received $20.4 million in total compensation for his services in 2007, the same year he announced his intention to purchase Countrywide Financial.

Only in America.

Andrew Barber
Director




the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next