This note was originally published at 8am on June 17, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Measured objectively, what a man can wrest from Truth by passionate striving is utterly infinitesimal.”
What’s the truth? Greek politicians lied.
Market prices don’t lie; politicians do. We have politicians running countries and banks. Everyone but them realizes that most of them are market morons. Use that truth to your risk management advantage.
While professional politicians wouldn’t even know what Excel sheet to launch alongside a real-time market price to measure market risk, you can bet your Madoff that these people know how to manage their political career risk.
That’s what I expect to see coming out of this weekend in Europe. That’s why I think the Euro has an immediate-term bid this morning. That’s why I have looked at the 7th consecutive week of down Global Equities as a Short Covering Opportunity (moving to 12 LONGS, 7 SHORTS in the Hedgeye Portfolio).
What’s the truth?
- The US Dollar is finally stabilizing above our critical $74.41 support line
- The US Dollar going UP = Deflating The Inflation
- The Euro (and the Fiat Fools who back it) are perpetuating 1 and 2
To say that’s not the truth would imply that Mr. Macro Market is lying. There is Infinitesimal Truth in the market’s prices if you accept that A) uncertainty and B) interconnectedness can lead you to it.
What’s the truth?
- For June 2011 to-date, the SP500 is DOWN -5.8%
- For June 2011 to-date, the Russell2000 is DOWN -7.9%
- For June 2011 to-date, the CRB Commodities Index is DOWN -4.6%
At Hedgeye we’ve called this Deflating The Inflation (Q2 Macro Theme). It’s occurring in the price of your home, stocks, and commodities. And yes, in the end, Deflating The Inflation is going to be very bullish for Global Consumption (70% of US GDP).
What’s the truth?
- Week-to-date, the price of Oil (at $93, which was our target) = DOWN -6.1%
- Week-to-date, the price of Cotton = DOWN -10.1%
- Week-to-date, the price of Wheat = DOWN -9.9%
And the truth about Deflating The Inflation in commodity prices is that 99% of the free, socialist, and communist world likes it. As for the other 1% of us who are chasing monthly performance metrics to manage our own career risk, I don’t think God cares.
I’m not trying to be trite. I like God a lot – but he doesn’t owe me a return. From the day that I started this business, I have been focused on transparency, accountability, and trust. All encompassing in these principles is the truth.
Whether people who want to see me fail like it or not, the truth is that Hedgeye has been right on 16 of 17 closed positions (LONG and SHORT) in the Hedgeye Portfolio in June. The truth is that’s called alpha – and we want you to embrace the process that generated it.
We are passionately striving for Macro Market Truths. They are very different than political realities. Since the US Federal Reserve was created in 1913, the world has had to deal with the market volatility caused by Fiat Fools implementing short-term career risk policies.
I have been on the road talking about this chart for the last 10 weeks, so many of you who have given me some of your time will be familiar with it (see Chart of The Day attached). This is a Reinhart & Rogoff chart from “This Time Is Different” (by the way Mr. Greek Politician man, it’s not) that tracks the median inflation rate going back to the year 1500.
This is a Global Macro chart. And yes members of the Keynesian Kingdom, markets are now Globally Interconnected. Ever since the world allowed professional politicians to decide what the perceived “value” was for fiat currencies (the post Gold Standard period, 200 years of Global Industrialization, 1740 to WWII – see chart), we have done nothing but:
- Shorten economic cycles of inflation/deflation
- Amplify the volatility of those inflating/deflating prices
If La Bernank et La Trichet have an answer to the causality embedded in this 510 year picture, I think the 99% of us would be more than happy to hear their version of the truth.
My immediate-term support and resistance ranges for Gold (we are long), Oil (Goldman has been bullish; Hedgeye Bearish), and the SP500 (we have covered all sub-sector S&P ETF shorts), are now $1521-1554, $93.01-98.98, and 1260-1278, respectively.
Best of luck out there today and enjoy your weekend. Happy Father’s Day, Dad.
Keith R. McCullough
Chief Executive Officer