This note was originally published at 8am on September 15, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“The critic has to educate the public; the artist has to educate the critic.”
Life is short. So short, in fact, that we should all try to find time to do things that we enjoy and derive some amount of satisfaction from doing them. I’ll be honest, I think most Hedgeyes enjoy what they do every day. As for other financial firms, I’m not so sure.
According to reports this morning, UBS lost roughly $2 billion from “unauthorized trading by a trader in its Investment Bank”. Not to name names, but if you work at a certain investment bank this morning, that kind of sucks.
So, here’s the bottom line, Hedgeye is hiring. What are we looking for? Well, quite simply, people that have a passion for doing great research. No, we aren’t going to offer anyone a super duper 3 by 10 guaranteed bonus, but if you do love what do and think your research is differentiated, well, then email me : email@example.com. Keith calls me Big Alberta and I’m more commonly known as the Director of Research at Hedgeye.
Back to the global macro grind. . .
Far be it for the lads at Hedgeye to be contrarian, but, are you sitting down, the SP500 is currently giving us a bullish immediate-term TRADE signal. Not only that, but 7 of 9 S&P sectors are giving us the same quantitative signal. Aye carumba ! Are the Hedgeye lads getting all bulled up? Well, at least for a trade. . .
Currently, the only two sectors that remain bearish on our TRADE duration are Financials (XLF) and Industrials (XLI). In the Virtual Portfolio, we are long Utilities (XLU) and short Industrials (XLI). Not only has this worked in the year-to-date with Industrials down -10.1% and Financials and Utilities up 7.0%, but we think it will continue to work.
It has been an interesting few weeks for us at Hedgeye. In dramatic fashion, we have seen many of the largest sell side economists capitulate to our view on the economy and growth. For those of our subscribers that read us somewhat regularly, they know being bearish is not new to Hedgeye. In fact, by way of a time stamp, attached is an article that I wrote for Fortune on December 31st, 2010:
If you don’t have time to read it, I will highlight one quote, which is as follows:
“Currently, according to a Bloomberg survey of the strategists from 11 of the largest brokerage firms in the United States, the mean consensus target for the S&P 500 by year end 2011 is roughly 10% above current levels. Further, every single strategist is expecting a positive performance out of the index in 2011.”
As my 9-year old niece might say, OMG ! Indeed, it is somewhat scary to think that the reputed smartest economists on the street got the target for the most relevant stock market in the world so wrong.
Yesterday CNBC hosted its Seeking Alpha Conference, which on some level was entertaining to watch. Actually, it was entertaining on many levels. The most interesting excerpt was from Leon Cooperman who, and I’m paraphrasing, indicated that he recently had lunch with his top friends in money management and they are all under allocated to U.S. equities. Now, obviously, Mr. Cooperman isn’t always right, but he has been around the block and his statement yesterday was insightful. Incidentally, and not that we planned this, our current weighting to global equities is currently 24%, which is our highest allocation since early July . . . aye carumba, indeed !
In the longer term, we are not so bullish. In fact, in the Chart of the Day today, we highlight the long term interest rates of Japan. Or as our Asian Analyst and former Yale lineman Darius Dale likes to characterize it : ZIRP. For those of you that don’t know what ZIRP means, it stands for Zero Interest Rate Policy. In the chart, Darius has outlined the dangers of ZIRP.
While conventional wisdom would have you believe that ZIRP means that equities are cheap on a relative basis, the history of Japan actually suggests otherwise. ZIRP was instituted in Japan in 1999 and the Nikkei has returned -37.4% since the start of that year. So while risk assets, like equities, look cheap vis-à-vis interest rates, it all depends on the assumed economic growth rate implied by interest rates.
On a totally non-linear note, I would like to end with a quote from a book that Keith is currently reading called “Gates of Fire”. As Keith emailed the team late last night:
“There’s an excerpt in Gates of Fire where the Spartan officer, Dienekes, was told (on the eve of battle) that the Persian archers were so many in number that when they fired their volleys, the mass of arrows would block out the sun.
Dienekes looked at the messenger and said …
“Good. Then we will have our battle in the shade.””
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research