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This note was originally published at 8am on November 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Desire is proof of the availability.”

-Robert Collier

As I grind through the end of Sylvia Nasar’s “Grand Pursuit” this weekend, I’m looking forward to the most talked about book in the high-halls of intellectual hockey-head thought – Dan Kahneman’s recently published “Thinking, Fast and Slow.”

I love everything about that title. Being an amateur writer whose first English paper at Yale was deemed “un-grade-able”, I think the punctuation (using a comma) of the title provides a lesson for everyone in this business. Thinking is important – sometimes you need to do it fast. Sometimes you need to do it slow. Risk waits for no one.

Thinking back to his prior works in the 1970s (a period Bernanke should familiarize himself with), Kahneman (and Tversky) did a psychological experiment called the “Availability Heuristic” which essentially “operates on the notion that if you can think of it, it must be important.” (Wikipedia)

Can you think of anything going on in Europe right now?

Of course you can. That’s all the financial media talks and writes about every day. South Park’s Trey Parker must have Blame Europe in the works, right?


How many Old Wall Street meetings and/or interviews have you observed in recent months where the person speaking ends what they are saying with the word “right?”


That’s the business we are in. Whether people want to admit it or not, groupthink in our economic outlooks, politics, and choice of words is pervasive. Too Big To Think?

Back to the Global Macro Grind

The reason why Global Equities have been going down since Q1 of 2011 has a lot more to do with Global Growth Slowing than it does anything else. If you got US and Global Growth right at the beginning of 2011, you’re having a good year.

This morning’s Global Macro data continues to hammer home the deep simplicity of this fundamental research point:

  1. China’s flash HSBC Producer Manufacturing Index (PMI) dropped again, sequentially, to 48 in NOV vs 51 OCT
  2. Hong Kong’s Consumer Price Inflation (CPI) remained elevated at +5.8% y/y in OCT (inline with SEPT)
  3. Germany’s manufacturing PMI dropped again, sequentially, to 47.9 in NOV vs 49.1 OCT

Oh, that last point is about Europe. Right.

Well the inconvenient truth is that Globally Interconnected Macro markets aren’t all about Europe. Asian Growth Slowing and USD Correlation Risk would be 2 of the Top 3 (next to Europe) that any objective global analyst has to be proactively prepared for.

Get the US Dollar right, and you’ll get The Correlation Risk right.

On our immediate-term TRADE duration, here’s how inversely correlated the US Dollar Index remains to the big stuff moving markets:

  1. SP500 = -0.83
  2. EuroStoxx600 = -0.89
  3. CRB Commodities Index = -0.79
  4. 10-year US Treasury Yield = -0.72

Anyone who trades stocks or commodities gets points 1 through 3, but point 4 is a stealth reminder that the US Bond Market had US Growth Slowing right throughout the entire US Equity and Global Commodity head-fake rallies of October 2011.

With the US Dollar strengthening again intraday yesterday, that’s partly why I sold my Gold position and took my allocation to Cash in the Hedgeye Asset Allocation Model back up to 67% from 58% day-over-day.

Gold is one of the most over-owned, over-valued, “asset classes” left in Global Macro markets.


With Gold’s immediate-term TRADE correlation to the US Dollar becoming more intense (-0.49 last) and the hedge fund community under liquidation pressure again here in November (the industry doesn’t do well when stocks and commodities stop going up), booking a small -3.6% loss in Gold makes me more comfortable than taking a predictably larger one.

In the meantime, Available Cash remains King. That’s a 2011 Availability Heuristic you’ll be talking about over Thanksgiving dinner.

My immediate-term support and resistance ranges for Gold (bearish TREND resistance = $1724/oz), Brent Oil (Bearish Formation), France (Bearish Formation), Hong Kong (Bearish Formation), and the SP500 (Bearish Formation) are now $1670-1724, $105.67-109.59, 2801-3003, 17801-18556, and 1177-1198, respectively.

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

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