This note was originally published at 8am on May 25, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“The future is here. It’s just not evenly distributed yet.”
Speculative-fiction author Bill Gibson is my kind of guy – he’s an American-Canadian. He also likes to make up his own terms for things and put himself out there with contrarian predictions about the future.
I’m currently in the middle of reading “The World In 2050” by Laurence Smith (excellent research read on resource risk, demographic risk, etc). In the very first chapter of the book, Smith gets your attention with the aforementioned Gibson quote and another by Niels Bohr.
Making market “calls”, or proactively managing risk around the edges of this globally interconnected marketplace, isn’t as hard as people crack it up to be. Sure, the daily grind is hard - but the data is there.
The future of Global Macro Risk Management is here.
Getting what people in this business used to call “edge” doesn’t come without orange jump suit risk. Ask The Raj about that. In economic cycles that are being shortened by Fiat Fool policies, the future of Risk Management Edge is going to be grounded in getting TIME and PRICE right.
To do that, in today’s marketplace at least (and this will change), you really need to get The Correlation Risk right.
To get The Correlation Risk right, you need to get the US Dollar right. To get the US Dollar right, you need to get monetary policy right. To get monetary policy right, you have to grind (or buddy up with The Gopher).
If the future was evenly distributed, you wouldn’t be seeing these massive moves in asset classes from quarter-to-quarter. It was only 6 months ago that Hedgeye had a Global Macro Theme called “Trashing Treasuries” (as in short them). Today, one of my highest conviction positions is long the long-bond (TLT). And in 3-6 months, I am sure that will change too.
What if you don’t change? What if you haven’t evolved your risk management process since 2008?
Dagny Taggart probably has a few answers for us all to those questions. My simple one is this – if you don’t evolve the process, you’ll lose. And I don’t mean lose whatever moneys you’ve made. I mean you’ll lose your confidence in making emotionless decisions. You’ll lose the conviction that it takes to change your mind.
So what is my Global Macro Risk Management process flagging this morning?
- Vietnam is the first Asian Equity market to crash – down -4% last night and down -20.5% since May 4th
- Japan continues to resemble the Big Government Intervention train wreck that bailout beggars in America want our markets to be
- Chinese equities have once again broken their intermediate-term TREND line of support (2811 on the Shanghai Composite Index)
- Indian stocks were down another -0.7% overnight to -12.8% YTD and remain one of our best Macro short ideas in 2011
- South Korean and Australian Equities have moved to bearish TRADE and TREND in our model – nasty signals for Global Growth
- Pakistan was up overnight, hooray
- European Equities are starting to look as ugly as their socialist policy to keep Greek and Portuguese bond markets ticking
- Germany, which we like, doesn’t look good
- Sweden, which we like, doesn’t look good
- Spanish and Italian Equities have broken their TRADE and TREND lines (this is new – in Q1 they were bullish on both durations)
- Russian stocks have broken their intermediate-term TREND line on the RTSI of 1964 – bearish signal for The Petro Dollar markets
- The Euro is testing and intermediate-term TREND breakdown of $1.41 TREND line support
- The US Dollar has moved to bullish immediate-term TRADE – what was big resistance at $74.41 is now big support
- US stocks have been down for 3 consecutive days and 4 consecutive weeks
- TREND lines in the SP500 (1321), Nasdaq (2794), and Russell2000 (826) are all broken as of last price
- Only 3 Sectors in our S&P Sector Risk Management Model are bullish TRADE and TREND (Healthcare, Utilities, and Staples)
- Volatility (VIX) is bullish on 2 of our 3 core durations (TRADE and TAIL), with a big breakout line at 18.04 daring you to buy the dip
- US Treasury Bonds look awesome – as in awesome bullish
Awesome is as awesome does. That’s the future. It’s here. And it’s our job to manage risk around it.
My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1508-1527 (bullish), $96.98-100.93 (bearish), and 1311-1321 (bearish), respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer