This note was originally published at 8am on December 30, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Year’s end is neither an end or a beginning, but a going on, with all the wisdom experience can instill in us.”
No matter where we go this morning, here we are – at the end of a what’s been a very long year.
While the Institutionalization of US Equities can play short-term games with our hearts and minds into month, quarter, and year-end markups, the #1 game in town from a Global Macro Theme perspective in 2011 was Growth Slowing.
For Global Macro Risk Managers, what did that mean?
- Major Asian, European, and US Financials Equities crashed from year-ago levels
- Commodities crashed from their 2011 YTD peaks
- US Treasury Bonds remained in a raging bull market
Since, magically, the SP500 has rallied once again (on no volume) to yet another lower long-term and YTD high (-19.3% and -7.3% from OCT 2007 and APR 2011 highs, respectively), I am certain that the marketing departments of Buy-And-Hold Inc will quibble with my globally interconnected interpretation of it all…
Here are some of the early Major League Macro year-end final scores:
- India (BSE Sensex) = -24.8% YTD
- China (Shanghai Composite) = -21.6% YTD
- Japan (Nikkei) = -17.3% YTD
Now an Institutionalized chap running other people’s money in “Asian Equities” might try to argue that being long Japan instead of India equated to him “beating” an Asia-Pacific Index. But “cheap” stocks look a heck of a lot cheaper in Japan -17.3% lower – and his investors may quibble with the representation of his “outperformance.”
How about other countries and commodities?
- Hang Seng Index (Hong Kong) = -19.97% YTD
- CRB Commodities Index = -8.4% for 2011 YTD
- Copper = -23.4% YTD
So, I guess, another Institutionalized manager could say being long Hong Kong outperformed long China and being long Gold outperformed being long Copper…
But these guys better not be on the record at the beginning of 2011 telling you that they nailed those relative outperformers because they thought Global Growth was going to be just fine. That’s like me telling you my Power-Ball ticket was closer to the winning number than yours. There’s only so many times you can change the thesis on why you were long!
Understanding that Piling-Debt-Upon-Debt Structurally Impairs Growth was critical to getting out of the way of most of these nasty 2011 draw-downs. That’s why the ladies and gentlemen who preferred to buy US Treasury Bonds on January 1st and hold them through today are smiling right now.
Check this out:
- 10-year US Treasury Yield started 2011 at 3.29%
- 30-year US Treasury Yield started 2011 at 4.33%
- Today, 10 and 30 year Yields are trading at 1.89% and 2.89%, respectively!
The math on that generates -43% and -33% drops in 10 and 30 year UST Bond Yields for 2011 YTD. The inverse picture of that math is best shown in the powerful 2011 chart of the TLT (which uses 20-year yields, splitting the difference between my two bellwethers).
Yep. That was the #1 macro call of 2011. And you could have expressed that in many different ways (long FLAT, which we bought in FEB of 2011 is up +28.01% since).
As I flip the switches on my risk management machines to 2012, I’m getting peer pressure to make another outside of consensus call. Sorry, I can’t do that, yet. Timing matters. Rarely do we get a signal on December 31st.
I’m not going to broker you a gratuitous “2012 Outlook” or sell you some ad space either. In the New Year, I’m going to do exactly what I did this morning – and the morning before that…
- I’m going to stick with my process
- I’m going to buy on red
- I’m going to sell on green
And I’ll try my best to not be overly bullish or bearish on anything that worked and/or didn’t work for us in 2011, because “all the wisdom experience can instill in us” reminds me that past performance is no predictor of future results.
My immediate-term support and resistance levels for Gold (covered our short yesterday), Oil (we’re short Brent Oil), China (we bought the CAF yesterday), Consumer Discretionary (we’re long XLY), Long-term Treasuries (TLT), and the SP500 are now $1537-1568, $106.89-109.11, 2154-2226 (Shanghai Comp), $38.24-39.98 (XLY), $119.16-123.87 (TLT), and 1245-1270, respectively.
It’s been a pleasure and a privilege to both play on this team and earn your business in 2011. On behalf of all of us at Hedgeye at Year’s End, we’d like to wish you the very best of health and capital preservation in 2012.
Keith R. McCullough
Chief Executive Officer