Jimmy and Timmy

“Never do anything against conscience even if the state demands it.”
-Albert Einstein

Consensus “stock pickers” didn’t do macro during the 25-year bull market, and now that’s all they talk about. At least we, as an investment community, are evolving – Darwin and Einstein would be proud.

Jim Cramer is one of those people who is now proclaiming his macro mystery of faith. Last night while I was driving home I heard him going off on how everyone “is throwing Tim Geithner under the bus...” and that he isn’t going to – he likes Geithner. For the Street.com’s accountability record, please let Cramerica’s “call” on Geithner be known.

Jimmy, hate to break it to you big man, but I’ll take the other side of the Timmy trade. For the transparency purposes that the likes of Cramer and others are all of a sudden giving lip service to, I issued a note to our macro clients shorting Geithner and the Dow Jones Industrial Index at 10:19AM yesterday morning (see www.researchedgellc.com  for the Hedgeye Portfolio). Having had Timmy’s prepared 11AM speech notes in hand, this actually wasn’t a very difficult call to make, provided that you had a proactively prepared macro investment process to have put the Timmy plan in context.

Context is much different than contacts. Some of the said hedge fund masters of yesteryear, who don’t have a macro process (like Jimmy), rely heavily on their “contacts” in the business telling them what to do and when. In this brave new world of globally interconnected markets, that doesn’t always work. It’s the equivalent of having to have someone turn on your high beams and wipers for you rather than flipping the switch yourself.

Following the leader isn’t actually all that bad – that’s if you’re following the right one. Cramer himself actually finds a way to get my intraday investment notes (without paying for them) – but heh, that’s the way some people in this business do business. While it’s sad, it is efficient. Eventually, the right call makes the rounds.

“Making the call” in this business is what differentiates the winners and the losers. That’s why this game is such a great one. Provided that you don’t play by the rules of the Blackstone “marked to model”  ideology, every day you can measure yourself, on a marked to market basis, versus the Jimmy’s of the world.

Jimmy has, of course, had his own issues with transparency, accountability, and trust. He and General Electric are in the midst of a cat fight with Rupert Murdoch’s Barron’s these days, and the poor guy is taking it on the chin. He’s an entertainer, not a portfolio manager – give the man a break! When it comes to his “call” on Timmy, however, what qualifies his opinion? I actually have no idea – maybe he is right. But I can tell you this – where I come from at least, being able to tell whether someone is trustworthy or not is not a life lesson learned on Wall Street. In the real world, we call this leadership quality sound judgment.

My judgment call on Timmy is not unlike that I have always had on Jimmy – I just don’t trust him. Yes, that’s a personal call… and sometimes my readers think I am being too hard on people… but guess what, calling someone out on the mat is actually ok in the real world, especially if you are going to be right. Whether its Jimmy, Timmy, or Billy (Ackman), it’s all one and the same – it’s called risk management.

Clearly, President Obama had someone proactively prep Timmy with media training (he spoke slow-ly… and arti-cu-la-ted his ev-e-ry con-so-nant), but forgot the content part. While the three parts to Timmy’s speech were spoken to cl-ear-ly… they lacked cl-a-ri-ty…

When it comes to delivering on Wall Street’s expectations, one needs to be crystal clear. Now that I have put myself in the fishbowl taking Jimmy and Timmy to task, here is what I read into the three point plan:

1.      Stress Tests – this was a way for Timmy to dance around what he should have said explicitly to the bankers who receive TARP moneys. If you receive bailout moneys, there will be a string attached – it is called re-regulation. There will be less bailout moneys to go to public banking companies, and as a result, you either comply, or you fail.

2.      Expanding the TALF (Term Auction Lending Facility) – this has been signaled by Larry Summers and the Rubinites for weeks. The number of recipients of government support is going to expand alongside the size of the free lunch. Instead of $200B, this number is closer to a tr-ee-lion do-llar-z… and the duration by which the government is going to get it into the hands of the people who are shameless enough to take it is being pushed out.

3.      Establishing a PPIF (Public Private Investment Fund) – this was new, but again, rather than say it explicitly, Timmy was as coy as he looks. I read this as team Obama leaning more to the side of marking to market (which Blankfein and Wasserstein support) versus marking to model (Schwarzman and Fuld).  Everything has a clearing price, indeed.


When it’s all said and done, I think the conclusions here are much more straightforward than the plan that Jimmy officially now supports: public companies will fail, survivors will be regulated, and the socialization of the United States of America will expand.

I didn’t need to have one of Jimmy’s “contacts” tell me what to do as I was listening to all of this. I have a process that’s my own, and I made the call. No, I am not always right… but I am accountable to the time stamp on every call that I make. As our markets revisit the darkness of trust in our financial system lost, all I have left is hope. Hope is what I kiss my son and wife’s forehead goodnight with in this great country, but unfortunately it’s not an investment process.

Jimmy and Timmy, I have been blessed to live in a country where I don’t have to “do anything against conscience even if the state demands it.” The days of old boy network “contacts” trumping repeatable investment processes are over. It’s time for The New Reality to take hold. President Obama, our expectation is that you uphold these principles of Transparency, Accountability, and Trust by which you now speak.

I, like many Canadians and Americans, am protecting my family’s cash. I have a 76% position in cash. I am short the Dow, and I have an immediate term downside target for the SP500 of 809.

God Speed out there today. This is going to be a rocky ride,
KM

Jimmy and Timmy - etfs021109