Being too long the US market into his Presidential victory top on November 4th (see chart) made me feel a lot like Obama’s description of himself on Friday - a "mutt." I hate one thing in life - losing. On a gross basis, the ‘Hedgeye Portfolio’ was down -1.1% this week (the S&P 500 was -3.9%).
The point in selecting the aforementioned Obama one liner as our “Quote Of The Week” has nothing to do with the choice of his family’s new White House puppy - it has everything to do with rhetoric and expectations. That’s what the US market traded up +18.6% from the October 27th low into (S&P500, ); it’s what dropped it fastest in 2 days since 1987 (Wednesday-Thursday); and it’s also what spiked us higher into Friday’s close (Obama’s late afternoon press conference).
If you're a Republican, you may very well have chalked up the Obama win to "it’s the economy stupid", and to some extent, it's hard for a realist to disagree with that. That said, I think it's equally hard for you to convince that same realist that Obama's victory wasn't partly due to his changing the tone of the political rhetoric in this country.
"Hope" is not an investment process, but it is something winners want to wake up to in the morning. When the rhetoric of hope is combined with absolute power, leadership has the potential to take hold. Between the control he has won in Congress and being within ear shot of having a filibuster proof Senate, Barrack Obama is going to be in one of the most absolute positions of Presidential power that this country has ever seen. That power/rhetoric can freak you out (Wednesday/Thursday of this week), or it can inspire you. To each their own.
Can Obama’s absolute power meet the expectations of his rhetoric? I guess the answer there can be yes or no, depending on your partisanship.
Be certain of one thing - Wall Street's old boy “tax cut” guard has doubted this man from the beginning. As obvious as Obama’s challenge will be to over-deliver on the bullish expectations of his faithful constituency are the bearish market expectations of what said capitalists of “Investment Banking Inc.” leaders past think a "leftist" can do to an economy – on that expectations front, Obama has plenty of runway to over-deliver to the right.
Don’t forget that he stood up on Friday, with Paul Volcker at his side, and called himself a "mutt"...
Expectations in market’s are critical, particularly if you have the power to set them…
Keith R. McCullough
CEO / Chief Investment Officer