"You cannot help men permanently by doing for them what they could and should do for themselves."
-Abraham Lincoln
On
the score of a one factor model (leadership), using 1-day as my
duration, I thought President Obama did a solid job last night. Using
that same duration, I thought Timmy Geithner was awful yesterday. These
aren't partisan points - they are simply my judgment calls on two men
and their respective character.
Lincoln taught us that sound
judgment and awareness are invaluable leadership attributes. We need
more people in the seats that matter in this country to start calling
things out that plain Americans with a YouTube are already concluding
for themselves at their kitchen tables. When Geithner speaks, anyone
with main street smarts cringes... he's what the boys back in my
hometown of Thunder Bay, Ontario would call a Squirrel Hunter...
Some
people who read this and consider themselves of the haute couture class
won't get that, and that's fine - they're squirrel hunters too, and we
don't want them leading America into The New Reality. Where this
country is going requires a broader sense of societal responsibility
than just how much money we make. Some people have learned nothing from
the US Financial System crashing, and we cannot help these people "by
doing for them what they should do for themselves."
Whether it
was Pete Najarian on Fast Money chanting that the real growth in this
market lies in "levering up toxic assets" or Jimmy Cramer shamelessly
dancing around the CNBC set to Beyonce's "Halo" applauding the Treasury
Secretary's performance - this is all one and the same folks - a
circus... and at some point it just needs to stop.
Squirrel
Hunters have no memory, no shame, and no pride. Najarian can get all
amped up about the immediate term TRADE breakouts in Goldman Sachs,
Morgan Stanley, and Blackstone all he wants, but if this country's
future lies in the hands of those executives who brought this great
American financial system to its knees, America will not be "helped
permanently" - and this will not end well.
The Client gets
this. The Client's name is China. While Goldman talks about selling
their handshake with their Chinese investment in ICBC (Chinese bank),
so that they can TRADE into bidding on Barclays I-Shares (which is a UK
asset selling at another government sponsored fire-sale, where Goldman
uses our government's TARP moneys to bid??), the Chinese are moving
forward shaking hands with new business partners around the world.
Overnight,
the Australian stock market continued its impressive run (up +14% since
March 6th) after Chinalco was cleared by Aussi regulators to buy their
$19.5B stake in mining giant, Rio. After securing $25B in oil and
natural gas partnerships with the Chinese, the Russian stock market has
been charging forward alongside The Client as well. The Russian Trading
System Index is up another +2% so far this morning, and now +16.6% for
2009 to-date. Yes, Squirrel Hunters, fire up your engines - I am going
to proactively predict that you begin to trumpet the Russian ETF that
we have been long, RSX, in the very near future...
You see,
despite it's fantastic +21.6% trough-to-peak short squeeze from the
SP500's 676 low, the USA's score is still -10.7% for 2009 to-date. This
is not a bull market. This is a bear market that ripped the snouts off
of the "hedgie" Squirrels who shorted the lows. No, I did not buy into
the book selling narrative fallacy that the US economy is in a Great
Depression; but I will sign off on the call that the said leadership in
this country, from the aforementioned cable network to US Congress is
indeed depressing.
American Idol had to push its show forward
by a day in order to make room for Obama's prime time appearance last
night. I'm a huge fan of success, and I absolutely love the
democratization of success associated with that show. American Idol
stands for a lot of principles that are transcending in The New
Reality. America wants to participate - she wants the voice of her
people to be heard. If there's a Squirrel Hunter on the screens, she
wants to vote them off - if there's a winner, they want to champion
that just as readily.
This is America. These challenges we face
from a leadership perspective are real. We need to unlearn a lot of the
received "wisdom" of those puppeteering our financial system. We need
to re-learn what made this country great. We need to evolve.
The
Chinese are providing not only the financial discipline associated with
having savings embedded in their society's culture, but leadership in
their ability to permanently help the global economy evolve.
The
US Bond market started to break down again yesterday. Yes, we all know
that Bernanke's US Treasury Bond buyback program goes live today... but
will that bid be enough? Are we doing the right things to permanently
fix what has been revealed as a structurally impaired financial system?
Do we have credible leaders in place that the Chinese can trust?
Don't
forget - China is The Client. China has the cash. China owns our debts.
And China knows exactly what a Squirrel Hunter looks like when
YouTubed...
The risk/reward in the SP500 this morning is evenly
balanced at +/- 3%. My intermediate TREND line resistance in the SP500
remains 829. For now, TRADE the range.
Best of luck out there today,
KM
LONG ETFS
EWC - iShares Canada-We
bought Canada on Friday 3/20 into the selloff. We want to own what THE
client (China) needs, namely commodities, as China builds out its
infrastructure. Canada will benefit from commodity reflation,
especially as the USD breaks down. We're net positive Harper's
leadership, which diverges from Canada's socialist past, and believe
next year's Olympics in gold-rich Vancouver should provide a positive
catalyst for investors to get long the country.
DJP - iPath Dow Jones-AIG Commodity
-With the USD breaking down we want to be long commodity re-flation.
DJP broadens our asset class allocation beyond oil and gold.
XLK - SPDR Technology-Technology
looks positive on a TRADE and TREND basis. Fundamentally, the sector
has shown signs of stabilization over the last several weeks.
Semiconductor stocks, which are early cycle, have provided numerous
positive data points on the back of destocking in the channel and
overall end demand appears to be stabilizing. Software earnings from
ADBE and ORCL were less than toxic this week and point to a "less bad"
environment. As the world stabilizes, M&A should pick up given
cash rich balance sheets in this sector and an IBM/JAVA transaction may
well prove the catalyst to get things going.
EWA - iShares Australia-EWA
has a nice dividend yield of 7.54% on the trailing 12-months. With
interest rates at 3.25% (further room to stimulate) and a $26.5BN
stimulus package in place, plus a commodity based economy with
proximity to China's H1 reacceleration, there are a lot of ways to win
being long Australia.
GLD - SPDR Gold- We bought gold on a down day. We believe gold will re-find its bullish TREND.
DVY - Dow Jones Select Dividend -We like DVY's high dividend yield of 5.85%.
SHORT ETFS
LQD - iShares Corporate Bonds-
Corporate bonds have had a huge move off their 2008 lows and we expect
with the eventual rising of interest rates in the back half of 2009
that bonds will give some of that move back. Moody's estimates US
corporate bond default rates to climb to 15.1% in 2009, up from a
previous 2009 estimate of 10.4%.
EWJ - iShares Japan -
Into the strength associated with the recent market squeeze, we
re-shorted the Japanese equity market rally via EWJ. This is a tactical
short; we expect the market there to pull back when reality sinks in
over the coming weeks. Japan has experienced major GDP contraction-it
dropped 3.2% in Q4 '08 on a quarterly basis, and we see no catalyst for
growth to return this year. We believe the BOJ's recent program to
provide $10 Billion in loans to repair banks' capital ratios and a plan
to combat rising yields by buying treasuries are at best a "band aid".
EWU - iShares UK
-The UK economy is in its deepest recession since WWII. We're bearish
on the country because of a number of macro factors. From a monetary
standpoint we believe the Central Bank has done "too little too late"
to manage the interest rate and now it is running out of room to cut.
The benchmark currently stands at 0.50% after a 50bps reduction on 3/5.
While the Central Bank is printing money and buying government
Treasuries to help capitalize its increasingly nationalized banks, the
country has a considerable ways to go to attain its 2% inflation
target. Unemployment is on the rise, housing prices continue to fall,
and the trade deficit continues to steepen month-over-month.
DIA -Diamonds Trust-We
shorted the DJIA on Friday (3/13) and Tuesday (3/24) and believe on a
TRADE basis, the risk / reward for the market favors the downside.
EWW - iShares Mexico-
We're short Mexico due in part to the country's dependence on export
revenues from one monopolistic oil company, PEMEX. Mexican oil exports
contribute significantly to the country's total export revenue and
PEMEX pays a sizable percentage of taxes and royalties to the federal
government's budget. This relationship is unstable due to the
volatility of oil prices, the inability of PEMEX to pay down its debt,
and the fact that PEMEX's crude oil production has been in decline
since 2004 and is down 10% YTD. Additionally, the potential
geo-political risks associated with the burgeoning power of regional
drug lords signals that the country's economy is under serious duress.
\IFN -The India Fund-
We have had a consistently negative bias on Indian equities since we
launched the firm early last year. We believe the growth story of
"Chindia" is dead. We contest that the Indian population, grappling
with rampant poverty, a class divide, and poor health and education
services, will not be able to sustain internal consumption levels
sufficient to meet targeted growth level. Other negative trends we've
followed include: the reversal of foreign investment, the decrease in
equity issuance, and a massive national deficit. Trade data for
February paints a grim picture with exports declining by 15.87% Y/Y and
imports sliding by 18.22%.
XLP - SPDR Consumer Staples-Consumer Staples was the second best sector yesterday. XLP has a positive TRADE and negative TREND duration.
SHY - iShares 1-3 Year Treasury Bonds-
On 2/26 we witnessed 2-Year Treasuries climb 10 bps to 1.09%. Anywhere
north of +0.97% moves the bonds that trade on those yields into a
negative intermediate "Trend." If you pull up a three year chart of
2-Year Treasuries you'll see the massive macro Trend of interest rates
starting to move in the opposite direction. We call this chart the
"Queen Mary" and its new-found positive slope means that America's cost
of capital will start to go up, implying that access to capital will
tighten. Yield is inversely correlated to bond price, so the rising
yield is bearish for Treasuries
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