Boozin'

“Well done is better than well said.”
-Benjamin Franklin

Japan’s Finance Minister, Shoichi Nakagawa, didn’t do either. What he said over the weekend at the G-7 meetings, drunk or not, never had a chance. There is nothing about Japan’s economic resolve in the last 20 years that has been “well done” – when considering the disaster of it all, one can understand why the man was bombed.

Nakagawa’s alleged sippin’ of the Sapporo ultimately called for his resignation overnight. This didn’t help Japanese or Asian trading overall – confusion in markets doesn’t breed confidence. Japan closed down another -1.4%, taking the Nikkei to 7,645 and down -14% for 2009 to date. Given the lack of leadership in the world’s largest socialized bureaucracy, one can hardly blame the poor man for boozin’. The reality is that Japan’s yield curve has been flat for the last decade – bankers there have zero interest rates and, alongside that, zero inspiration to attract foreign capital.

The New Reality (sorry Vikram Pandit, that’s our line you are using now – don’t be the raccoon), is that politicians, globally, will be YouTubed and held accountable, real time. Politicians stand on no lower moral ground obviously than some of the bankers or bandits who got us into this mess. Now that the Obama love fest is over, Americans are coming to their senses and reminding themselves of as much.

At -8.5% for the year to-date, the USA isn’t down as much as Japan, but it’s still rather embarrassing. While Timmy Geithner wasn’t loaded last week, maybe if he pounded back a few Bud heavies prior to his being YouTubed he wouldn’t have looked like he was such a stiff. From the Pandit Bandit to the tricky Dick Fuld wanna be’s who performed marvelously in front of Congress last week, I bet they wouldn’t have minded if Timmy chugged back a few and endowed them all with another trillion of bailout moneys. “Booo-yah” Timmy Boy! Boozin’!

Unfortunately, for the bankers at least, there were no wheel barrows of moneys marched down the Congressional aisle. While “Heli-Ben” (Pandit, don’t go using that line of ours now) was doing his best to drop massive amounts of US Debt on our former Chinese friends, Timmy was told to save some of the moneys for teachers, firefighters and tree huggers instead. My Mom is a teacher, my Dad is a fireman, and my brother hugs trees – too bad they are Canadian!

Today, “no drama” Obama will be signing the almighty stimulus bill from Colorado rather than from ole Bushy’s desk. Maybe he is looking for some karma of his own – maybe he just needed to get away from that evil doer Washington DC rhetoric. Obama’s approval ratings have fallen rather dramatically in the last 6 weeks. Since the first week of January his approval rating (Rasmussen poll) has tanked from 69% to 60%.

Obama saw a 60% approval rating in the week of November 20th. Ironically enough, that was the week where the SP500 bottomed at 752. Given that the SP500 is now trading almost +10% higher than that global Liquidity Crisis capitulation low, Obama and his strategy man, David Axelrod, should be rather thankful that it hasn’t been worse.

With the world’s 2nd largest economy sending their Finance Minister to the microphone drunk, the Chinese signing their largest oil deal ever with the Russians last night ($25B, Vladdy – we lend you that cash that we used to lend Americans, you give us the black stuff), and America’s Batman being soured on by Gotham… could things for Obamerica be worse? Of course they can… so pay attention to the deltas out there in your geopolitical analysis. Everything that matters to markets from here will most definitely occur on the margin.

We all know, in hindsight, what Obama’s confidence did for the US stock market in December. However, most people still don’t fully realize what that did to the US Dollar. As the buck broke down in December, stocks broke out to higher highs, almost weekly, and never looked back at making lower lows. The only week that we saw a material rally in American stocks in 2009 was the one week where the US Dollar Index was down on the week. Last week, was not that week, of course. Last week, the US$ Index closed up a tidy +1.5% and the SP500 lost -4.8% as a result. This morning, the US$ is bid 1% higher, and S&P Futures another -2% lower…

Hold on here Keith, this doesn’t make sense. If Biden wants the world to “buy American”, and the Chinese are selling into that… shouldn’t the dollar break down? In theory, every economic case can be made – that’s why John Maynard Keynes and Irving Fisher never got along. But The New Reality is that the inverse correlation between the US Dollar and US Equities is as formidably relevant as any major one I see right now in macro.

For 2009 to-date, the US Dollar Index is +7% and US stocks are -8.5%. Interestingly, the CRB Commodities Index is down exactly the same percentage as the US Dollar is up – seven percent. While seven is a lucky number in China, and there is a seven in the Chinese stock market’s YTD return of +27%, there may be no other correlation to be made here other than that being the minimum amount of cocktails a Japanese man who has to talk transparently about his country’s economic situation needs to pound back prior to speaking.

Markets, globally, are going to try to put in another higher low this week, and I think they should. I have our Hedgeye Asset Allocation Model holding a 76% position in Cash (US Dollar denominated!), and I am looking forward to getting invested again at lower prices.

If one thing has held true for the last 12 months of investing, it is quite simply that patience pays. In The New Reality, this proactive risk management approach will allow you to buy low and sell high. Buying from forced sellers and drunken sailors of the free money leverage cycle will continue to remind us that, “well done is better than well said.”

My downside target for the SP500 to cover/buy stocks remains 810.

Boozin' - etfs021709


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