This note was originally published at 8am on September 01, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Willful blindness of the non-linear core nature, has led to the attempts to manipulate the markets certainly by government.”
-Martin A. Armstrong
It is the nature of a man who is in the business of being bullish to be bullish. It is in the nature of a woman who is in the business of being bearish to be bearish. Human Nature’s Manipulations of market storytelling is what it is. People push their own book.
Over the last 3 years I have been accused of being both a raging Republican and a Yale campus Democrat. In 2009 I was, allegedly, a “reckless” bull. In 2011, I am, allegedly, a Perma- Bear. All the while, across 1,377 positions that I have taken since founding Hedgeye in 2008, my long versus short positions are close to dead even (660 LONGS, 677 SHORTS). Time stamps matter.
Perma-Process? Perma-Risk Manager? Perma-Mullet? Who knows. What I do know is that if I am not more right than I am wrong on the big stuff, we don’t get paid. Despite Perma-Bulls claiming they nailed it in August, both the US and Global Equity markets got decimated.
Across our Global Macro model’s Global Equity market league tables, here was the score for August 2011:
- Greece = down -23.9%
- Germany = down -19.2%
- Italy = down -15.6%
- Russia = down -13.4%
- Austria = down -12.7%
- South Korea = down -11.9%
- France = down -11.3%
- Argentina = down -10.7%
- Sweden = down -10.6%
- Taiwan = down -10.4%
So, I guess, the US stock market bulls who were expecting 3-4% US GDP growth and SP500 returns of 15-20% in 2011 were a little off in August, but they weren’t crashing like everything else (SP500 and Russell 2000 down -6.1% and -8.7% for AUG, respectively).
That must be bullish. And I must have been too bearish.
Heck, just look at how high US stocks bounced “off the lows” in August. That’s just gotta be bullish, no? Without any economic data to back it (US consumer confidence hitting 1970s type lows; housing/mortgage demand at 14 year lows, global stock markets getting smoked, etc), the bears must be too bearish. Right? Ah to be a connoisseur of consensus…
While the answer to who called the August bottom AND actually called the April top remains unclear, what remains crystal clear is that people who are in the business of being bullish bought stocks into August month end.
In the Hedgeye Chart of The Day, Darius Dale, illuminates the simple reality of institutionalized career risk management:
LAST 6 DAYS OF THE MONTH (in the SP500):
- APRIL = +2.0%
- MAT = +2.1%
- JUNE = +2.6%
- JULY = -3.8%
- AUG = +4.9%
FIRST 6 DAYS OF THE MONTH:
- MAY = -1.3%
- JUNE = -4.9%
- JULY = +1.8%
- AUG = -13.4%
- SEP = ?
Now, if you want to roll the Bernanke Bones on this, maybe this time will be different. After all, that’s what the Keynesians and Fiat Fools have been telling us all along. But if it’s not, the US stock market could have a big problem in September. That +4.9% month-end markup into August end was the most aggressive yet and, as you can see, the higher they mark’em up, the harder they fall.
Arresting economic gravity is difficult. But Obama is scheduled to release his new bag of goodies next Thursday and, all the while, Charlie Evans can pop in from the Chicago Fed for another US Dollar Debauchery interview (not that his being paid by The Commodity Inflation or sitting on the Chicago Metropolis board with CBOT and UBS execs is a conflict of interest versus the Fed’s “independence” or anything like that).
So sit back and enjoy some price volatility in September as the Fed keeps cranking on full employment and “price stability”! We really need these guys to do a lot more of what didn’t work with QG2. Nature and the non-linear interconnectedness of Global Macro markets be damned.
Today’s risk/reward in the SP500 is dead even. I have 1203 and 1234 as immediate-term TRADE support and resistance. After moving off of my 0% asset allocation to US Equities last Friday (bought Utilities and were up +3.3% on that already) we’re long XLU (Utilities) and short Financials (XLF). Where could I be wrong? All over the place I guess. My every morning starts and ends with Uncertainty.
My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1822-1905, $85.98-89.72, and 1203-1234, respectively.
Best of luck out there in September,
Keith R. McCullough
Chief Executive Officer