Time Stamps

Putin had Medvedev call off the war planes in Georgia this morning, Oil is down to $113, and Gold is hitting its 2008 lows. Doesn’t the world feel like a warm and fuzzy place again?

The only place I’d feel safe is hiding underwater with a bag of waterproof cash and Michael Phelps waiving off bull sharks overhead. While it is not clear whether or not Russia’s first military offensive since 1991 is actually over yet, it is crystal clear that Russia will do what they want, when they want. On this day in 1953, Russia detonated “Joe4” – their 1st thermonuclear bomb. While we don’t see that happening again anytime soon, no one else who bought the US market at yesterday’s highs does either – that’s why we call these scary ideas tail risks.

Phelps won his 3rd gold medal for the US last night, and this morning the US market is going to make its bid for its 3rd up day in a row. Yesterday, after lunch, my quant model registered a sell signal at the 1312 line in the S&P 500, so I sold my SPY position there. We have a “Hedgeye Portfolio” tab up on our site in beta test right now. The objective of the product will be twofold: Accountability and Timing. Two things that I think buy siders and individual investors alike want from Wall Street.

While being long the US market for a “Trade” for the first time in 2008 was a short stint, remaining short the Japanese “Trend” continues to be one that I have time stamped on the books. Despite the blow off in commodity inflation in July, Japan still posted an inflation number for July last night that registered as a 27 year high (+7.1% year over year). Inflation can be imported by a weakening currency as well as heightening local wage inflation – Asian economies are struggling with both of these factors all of a sudden. These factors will perpetuate economic stagflation in the immediate term.

The Nikkei closed down another -1% overnight at 13,303. On a breakdown and close through the 13,144 line, watch out below. Japanese stocks hardly look as ugly as those in China or Pakistan yet, and if you believe in mean reversion, that’s the point. There is much more downside in country indices that I am currently negative on like Japan and Mexico, than their respective regional counterparts like China and Brazil. China closed down another -0.52% overnight, taking its losses to -10% in the last 3 trading days, while Brazil got clocked for another -3.3% down move yesterday, taking the Bovespa’s cumulative losses since our “Fading Fast Money” call on 5/20 to -26%. Fertilizer or live chickens anyone?

Pakistan’s Karachi 100 Index has lost -34% of its value since the beginning of May. Alongside the geo-political tensions they are dealing with, wage inflation and currency devaluation are being revealed as primal fears. This morning Pakistan reported an inflation rate of +24.3% year over year. No, commodities deflation didn’t douse their domestic fires. It is “global this time” folks, indeed.

In the UK, consumer prices inflation surprised me to the upside, coming in at +4.4% year over year. Again, this is a July report and comes in well ahead of expectations, despite commodity deflation. The Euro’s -7% decline in less than a month is inflationary (for them). It is also recessionary. The only positive global inflation reading we have this morning was China’s, of all places – but their stock market didn’t care. Maybe that’s because they make some of their numbers up.

We can be bullish on the US market “Trade”. We can be bearish on the Japanese “Trend”. We can have positions in neither. We are data dependent, and looking forward to reflecting these views to our clients, real time, with time stamps. The US Dollar is finally overbought, as are US stocks at S&P . If these highly correlated macro “Trades” reverse, expect the bearish “Trend” to retake its grip on US investor psyche, expeditiously.

I am hiding under water, and I don’t feel warm and fuzzy about anything fundamental going on above (other than Michael Phelps), yet.

KM



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