"The
object of this competition is not to be mean to the losers but to find
a winner. The process makes you mean because you get frustrated."
-Simon Cowell
Finding
winners in this globally interconnected market place of countries,
currencies, and companies is all of a sudden a very easy thing to do.
In the last month, we've successfully shifted our focus away from where
the proverbial puck of negativity had been, proactively anticipating
where it was headed next .
Like zipping a pass onto Yale
Hockey sniper Sean Backman's tape tonight against Vermont, we want to
be playing with a sense of urgency out there, aligning ourselves with
the winners of this world who want that biscuit bad!
The
"biscuit"? Yessir! That would be what we men/women of the ice call the
puck - and if you want to be a winner in this world, you better be
hungry for it. Gone are the levered long days of working for the
compromised, conflicted, and constrained. Back are the days where the
handshake and credibility that you establish with the boys on the back
of the bus have always been.
Accountability and Trust trade
at a premium again. Both of those business principles are the winners
in this global arena - and no matter where you go, there they are.
While
the manic media's #1 story on Bloomberg this morning has something to
do with President Obama "seeking the support" of the bankers (all 12 or
25 of them are having a luncheon in NYC at noon - how pleasant),
there's a much bigger story going on here in the real world. Countries,
companies, and currencies who have aligned themselves with what The
Client (China) NEEDS are winning again.
You see, the art of
managing money from Wall Street to the Hong Kong has always been having
money to manage. Somewhere along the line here a lot of people forgot
that the money they were levering up was not their own. Finally,
they're being punished for this lack of fiduciary responsibility the
old fashioned way - redemptions and regulations are for them. That's
what the losers deserve. Go to de penalty box, eh, and feel shame...
The
Client always comes first, and if you've maintained that principle in
your investment strategy in 2009, you are probably crushing it. The
Client is China, and no she doesn't need any more of them US Bonds or
Financials. The XLF (SP Financials Sector) is down -25% for the YTD,
while the XLK (SP Technology Sector) is up +5%. Meanwhile, as global
cost of capital begins to rise (from zero, yes - eventually it does go
up), and the access to it continues to tighten, the bubble boy safety
net of what was once the US Bond market stability no longer has a
goalie.
Like Americans in the 19th century, the Chinese of the
21st kind would like to have both a roof over their head and a stock
market of their own. There is nothing in this world that is so
impressively powerful as what Adam Smith called that Invisible Hand of
self interest. If that sounds too capitalistic or too competitive for
you, I guess that's too bad - ask one of these young Bulldogs playing
in the Sweet Sixteen in Bridgeport, CT tonight what they think about
that...
This isn't a political thing. This is a winners thing
- we need to get the biscuits to the people in this world who can
score. That's it - call me a knucklehead ideologue or whatever it is
that most people rightly call us hockey players - we're cool with it.
After
closing up another +2.3% last night at 832, the SP500 is up +13.2% for
March to-date and UP +23% from the March 9th lows. March Madness that
is! And you can bet your Madoff that a lot of preachers of the Great
Depression are now those who are rightly depressed for being short this
move - it's the biggest monthly win the SP500 has had since 1974!
Remember
that silly ole community organizer from Chicago that all of the Wall
Street "Wizards" laughed at for calling the US market a "bargain"?
Well, you can accuse Barack Obama of being a lot of things, but one of
them isn't that he is a loser. My scorecard reads Obama +19.5% in the
SP500 since he saw some value - Oracle of Obama?
It's not just
Obama making his first ever call on a market that's proven to be a
winner. The Chinese locals saw the Shanghai Composite Index close at
another new YTD high last night at +30.4%. The boys from down under
have had a big run aligning themselves with The Client - the Australian
stock market added another +0.82% last night taking their stock market
back to flat for the YTD and +10% for March. Canada is also +11% for
the month (+1% YTD), while Brazil has charged higher again taking 2009
YTD performance to +13.5%.
With the UCONN Huskies moving into
the Elite Eight last night, there is March Madness in Connecticut from
the hard floors to the ice. My "contacts" are telling me that the
Russians are having a big party watching the whole thing (they love
hockey) - the Russian Trading system is tacking on another +1% this
morning, taking its March to-date performance to +39%! The only
American winning performance that's been comparable to that Russian rip
has been the marked-to-market price of West Texas Crude Oil... but that
there Texas stuff aint local folks - its global... and oh baby does The
Client need a lot of it!
Next time you see the smoke and
mirrors from the losing team (Elliott Spitzer speaking on "the
integrity of capital markets" at Columbia University, or Larry Kudlow
talking about how "they" all missed this crisis on his show last
night), just ignore them, and look ahead to the leadership being
provided by the winners of this world.
I'll be feeding my
investment team the biscuit this afternoon, as we proactively prepare
with some pre-game refreshments for Yale Hockey vs. Vermont. The puck
drops at 630PM EST.
Have a great weekend - Go Yale Hockey!
KM
LONG ETFS
QQQQ - PowerShares NASDAQ 100
- We bought QQQQ on Wednesday (3/25) on the pullback. We believe the
NASDAQ has moved into a very bullish tradable range and is breaking out
from an intermediate TREND perspective alongside the more Tech specific
XLK etf.
USO - Oil Fund-
We bought oil on Wednesday (3/25) for a TRADE and are positive on the
commodity from a TREND perspective. With the uptick of volatility in
the contango, we're buying the curve with USO rather than the front
month contract.
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 and is +5% YTD.
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
XLI - SPDR Industrials- Looks positive for a TRADE and negative as a TREND.
EWL - iShares Switzerland -
We shorted Switzerland for a TRADE on an up move Wednesday (3/25) and
believe the country offers a good opportunity to get in on the short
side of Western Europe, and in particular European financials.
Switzerland has nearly run out of room to cut its interest rate and due
to the country's reliance on the financial sector is in a favorable
trading range. Increasingly Swiss banks are being forced by governments
to reveal their customers, thereby reducing the incentive of
Switzerland as a tax-free haven.
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).
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 worst 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