This note was originally published
at 8am on November 14, 2011.
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“This lazy conformism is one of the big dangers of this country today…”
In Niall Ferguson’s “High Financier”, that’s what Warburg had to say about British political leadership in 1957. “There is a frightening amount of mediocrity … and there should be a crusade against complacency…” (page 136).
In 2011, anytime we call Old Wall Street out on these types of structural issues, they either block us or get really upset. That means we’re being the change we all want to see in this business. Groupthink is dying on opacity’s vine.
If the American financial empire wants any chance at seizing this global debt crisis as an opportunity to change, we better start now. Post WWII Britain had to learn this lesson the hard way - time is not an entitlement.
Back to the Global Macro Grind…
Pressure packed with volatility and hope, last week was exciting. While hope is not a risk management process, fading the market’s beta is – and we’ll look for direction from King Dollar on that front once again this week (we have a 12% asset allocation to the US Dollar Index in the Hedgeye Asset Allocation Model).
Week-over-week Macro moves:
- US Dollar Index $76.94 = flat
- Volatility 30.04 = flat
- Commodities 320 (CRB Index) = flat
That’s a lot of flat.
In US Equities, the message wasn’t as flat:
- SP500 = up +0.8%
- Nasdaq = down -0.3%
- Russell2000 = down -0.3%
But, this weekend, there was a Lazy Conformism in analyzing what, precisely, all of this interconnectedness might mean to Global Macro investors. I saw a lot of pundits go as far as to say things like ‘when you really think about it, US stocks are flat this year.’
If you really don’t think about anything at all, that probably sounds right. Who needs to analyze anything or charge a fee for proactive anything if we could have all just closed our eyes during a +101% rip in Volatility (VIX) since May, and gone back to bed?
Whether it’s the Nasdaq or Russell 2000 having closed down for the last 2 weeks or US Treasury Yields dropping to 6-week lows as the SP500 tries to sustain low-volume 6-week highs, there is plenty to think about. Excellence in your risk management process is required.
Being excellent is ok. So is not losing money. In fact, for my money, that’s Rule #1 in this game – and rather than subscribe to some form of centrally planned mediocrity in this business that dares people to chase yield, we’re going to stick with what’s been working since late 2007.
Since making lower long-term and intermediate-term highs:
- The SP500 is down -19.3% since October 2007
- And down -7.3% since April 2011
Lower long-term highs in stock prices with higher long-term lows in volatility is what’s crushing both the economic cycle and investment returns. The Old Wall and Washington’s analysis of as much is broken.
Change needs to happen now. And no, hiring a lifer bureaucrat and Keynesian economist to run Italy isn’t the change Americans want to see in this world. Out with the whiners - Americans want to start winning again.
My immediate-term support and resistance ranges for Gold (bullish), Oil (bullish), German DAX (bearish), French CAC (bearish), and the SP500 are now $1766-1818, $95.39-99.89, 5969-6146, 3047-3176, and 1248-1269, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer