Fade Fear

This note was originally published at 8am on November 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.

“Fear is nothing more than a state of mind.”

-Napoleon Hill

Hedge Funds fear being short. Mutual Funds fear missing Santa Claus. Central planners fear-monger.

What is a Global Macro Risk Manager to do?

Fade Fear.

Last night, while the elephantine academic intellect of Larry Summers was engrossed in The Munk Debates in Toronto (I LIVE tweeted the entire debate from 700-830PM EST), at one point he paused and stated, “in a democracy, fear does the work of reason.”

Fade Larry Summers.

Last week, as the Euro was punching up against my $1.37-1.38 TRADE wall of immediate-term resistance, Goldman’s currency strategist said fear the short squeeze and buy the Euro.

Fade Thomas Stolper.

Last month, after the biggest stock market rally ever in October (ever is a long time), JP Morgan’s Thomas Lee said to stop thinking about everything else and chase beta.

Fade Thomas Lee.

With the US stocks down a full 1% yesterday, they are down for both November and 2011 YTD. Some Santa Claus rally we’re having here in mid-November…

I’m short the SP500 (SPY), long the Long-Bond (TLT), and long the US Dollar (UUP) – and relatively loud about all three of those positions. If you’ve been fading me since October 2007 or April 2011, you still have some Thanksgiving hay to bail (for November 2011 to-date, Hedgeye is 12 for 14 in the Hedgeye Portfolio).

To get back to SP500 breakeven:

  1. You’ll need to be up +25% (from here) to recapture the -20% from October 2007 watermark
  2. You’ll need to be up +8.9% (from here) to recapture the -8.2% from April 2007 watermark

Geometric math is hard to fade.

But since the Keynesians continue to attempt to ban gravity, I supposed they could move towards banning math after this morning’s drawdown in Global Equities too. If we’re fundamentally scared out of our bloody minds, there is no telling what central plan is possible.

Back to The Munk Debates - I thought David Rosenberg won last night. For those of you who missed it, the debate was between the teams of David Rosenberg/Paul Krugman and Larry Summers/Ian Bremmer.

What was crystal clear after the opening statements was that Krugman and Summers were actually on the same team.  Rosie, The Canadian, was quick to figure that out and proceeded to physically poke his debate partner (Krugman), then proceeded to tell Summers he was “dropping the gloves” … reminding Larry of how bad his economic “forecasts” have been…

Fade Keynesian Economics.

Summers was literally quoting Keynes during the debate as he and Krugman agreed that the only answer to this mess is to do a lot more of what has not worked.

If you’re going to fear anything this morning, fear that.

My immediate-term support and resistance ranges for Gold, Oil, France’s CAC, Germany’s DAX, and the SP500 are now $1735-1808, $96.13-99.73, 3031-3179, 5771-5959, and 1233-1269, respectively. If 1233 in the SP500 holds, I’ll consider covering SPY there.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

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