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The Call @ Hedgeye | March 28, 2024

“She take my money when I'm in need… Yea she's a triflin' friend indeed…Oh she's a gold digger way over town… That digs on me”
-Kanye West
 
These are lyrics from Kanye West’s “Gold Digger”, which went straight to the top of the US Billboard Hot 100 back in 2005. Oh baby did this song have some momentum! Jaime Foxx provided the guest vocals and this All-American rapper turned prospector had himself a smash hit – little did he know he was signaling one of the biggest calls in Global Asset Allocation that we have seen in the last 3 years!
 
Gold started to find her global inflation bid in 2006, testing $700/oz by summertime, only to fall right back to $575/oz come the fall. By the time 2007 rolled around, all gold wanted to do was signal one of the greatest positive auto-correlations in asset prices (across asset classes) that the global economy had ever seen.  By the end of 2007, gold was chugging toward $800/oz, and kept riding the rocket of momentum up to $1000/oz by early 2008.
 
This asset class, much like US Treasury Bonds, has been one of the few that haven’t seen her bubble pop. This morning gold is pushing higher towards $945/oz, and at +7% for 2009 year-to-date, everyone and their brother is all of a sudden a prospector of this solid gold tune.
 
Now, as most of you know, I have been a gold bull. While I think you can still trade gold with a bullish bias, right here and now it is borderline reckless to be considering it a unique investment idea. I shorted it into yesterday’s close, for an immediate term “Trade.” If you remain objective, you can buy gold low and sell it high. There are no rules against doing so. This is how I manage risk.
 
Call me stupid, or call me competitive. I, like Kanye, can be “down with that”, at a price. When CNBC’s Joey “The Contrarian Indicator” Terranova is ramping up his buy gold idea on Fast Money like he did last night, the best thing you can do… at a bare minimum… is sell what you are long right into his bid.
 
Once a week, I say a prayer that the likes of Terranova stay on prime time TV. Alpha is hard to come by these days, and sometimes the only way to pick off passes is to have arm chair quarterbacks step onto the field throwing real passes. Remember, in Disney’s “Invincible” Joey Papale (played by Mark Walberg), was the only man, out of the entire city of Philadelphia, who had a repeatable enough of a process to play with the pros.
 
The manic media’s favorite book salesman, Peter Schiff, of Euro Pacific Advisors, was on Kudlow last night, talking up his latest paperback suggesting that the Dow Jones Industrial Index could trade at the equivalent of “ONE ONCE of gold by the time Obama leaves office.” Peter, “C’mon Man” – I get the whole pushing your paperback thing, but why not show the Street how your actual book (as in portfolio) is doing so far in 2009. The Dow closed at 7,939 yesterday – are you suggesting that the Dow has 88% downside from here, or gold 88% upside? Or neither, and just trying to be your usual alarmist self?
 
While I am short the Dow in our Hedgeye Portfolio, I certainly don’t share Peter’s apoplectic views. The reality is that while Joey is really trying hard at becoming an entertainer (and I admire his effort) Peter remains one of the many people who have always been bearish on the US stock market, and are now trying to say they called it. There is no honor in that Peter – if you want to sell books, do that – if you want to wear the jersey as Connecticut’s top macro man in global macro, show us your book.
 
The 2007 bulls are bearish, and the 2008 bears are trying to sell books. That’s what we have left here, and that’s why no one is really allowed to be bullish on the US stock market, yet…
 
The way that this business works is that you can only be bullish on something when everyone else in the room is, or you run serious career risk, particularly if you are an analyst. Momentum managers have no patience for an analyst like say, Kanye West, to be bullish on gold in 2005. What these masters of consensus want is for their analysts to jack up the volume and get their hedgie friends to be bullish on gold today!
 
Today is actually “Darwin Day” – it’s his 200th birthday – and he would get a chuckle out of this note, because this is exactly how Wall Street creatively self destructs the consensus trades of lemmings, and rewards the next set of market wizards in the making.
 
For an immediate term “Trade”, I bought oil yesterday, and shorted gold. Unless I ran my own firm, I probably wouldn’t be able to do that in this environment for someone else – not with real capital at least. Very few firms are allowing their traders to take on any risk, let alone something wild and crazy like buying oil while it is on the clearance racks at -76% off. That’s both a sad point about where momentum investing has brought this profession, and a wonderfully obvious opportunity for the next generation of American capitalists to take advantage of.
 
In global macro, the South African and Middle Eastern equity markets have always been stealth leading indicators for where gold and oil can trade in the immediate term. South African stocks are down -1.4% this morning and those in the United Arab Emirates are +1.4%. Oh what are Peter and Joey to do with these little critters that we call global macro factors? Do these guys have an investment process? What is it, gentleman, that you do?
 
Kanye West is a rapper; Schiff is a book salesman; and Terranova is a momentum entertainer – and at least one out of these three men would agree with my conclusion. Today is Darwin Day, and we’ll have to let the market decide on the other two from here.
 
My downside target for the SP500 is 808. I am short the Dow, and I still think that the US market continues to make higher lows on selloffs.
 
Best of luck out there today.

 

 Gold Diggers - etfs011209