Winning

Three more American gold medals were won in the pool last night, with Michael Phelps adding his 6th, pushing Team USA ahead of the Chinese in total medals by a score of 44 to 37. The Canadians have no medals.

My fellow Canadians and I can stay awake well into the night hoping for a bronze in synchronized diving or whatever it is that has less global competition, but our hopes are just that - hopes. Hope is neither an investment process nor a winning strategy when competing in a global grudge match. Confidence in a repeatable and disciplined daily research regimen is however, and that’s primarily why I come across overly proud of ours every morning.

As you might imagine, my morning thoughts elicit plenty of responses. Usually, the highest octane criticisms I receive land in my inbox within 3 minutes of the note’s distribution. Yesterday, I had one that said “good research, but hard to read”. On many counts, I think that view is fair. I am very aware that my writing style is overly confident.

We’re not in this game to appease personalities. We are in it to win it. If we score, we want you to, alongside us. My teammates are much more humble than I. Thank God for that! That gives us balance. The only way I know how to play is on the edge – that’s why our firm bears the name. I feel “smart” every morning because my teammates are. The underpinnings of the knowledge transfer mechanism in Wall Street Research are changing. Our highest conviction “idea” today, is that we know what this paradigm shift will look like tomorrow.

This morning’s pre market news is looking as light as yesterday’s trading volume did. What remains of the bullish “Trade” formation we are in should play out quietly as we move to the high end of my range. The most impressive moves remain in the deflating inflation “Trade”. The US Dollar’s positive correlation with the US stock market remains the most relevant macro factor to watch. The US$ Index is trading higher again this morning at 77.12, +7.3% since July 14th. Currencies in Asia and Europe continue their decline alongside commodity prices. I am going to bump up the high end of my S&P 500 range to 1316, from 1312 prior. Deflating commodity inflation is undoubtedly bullish in the immediate term. If we test the aforementioned 1316 line, the question will be what matters more from there, global growth or inflation slowing?

On the growth front, Asian markets were weak again on both an absolute and relative basis to global equities because Hong Kong joined Singapore and Japan as the latest Asian economy to report a major slowdown in GDP growth. Hong Kong reported a +4.3% growth rate for Q2, down sharply from +7.3% in Q1 of this year, and well below consensus expectations of a number closer to +6%. Singapore and Japan told us they are both running negative export growth this week, and now the lead article in the Wall Street Journal this morning goes something like ‘US Economic Slowdown Spreading Globally’. Gee, thanks for the proactive prediction ahead of time.

I have been penning my thoughts and themes about Asian growth slowing since Q4 of last year. This was in the face of Wall Street misleading Main Street and then ultimately itself. It was supposed to be “global this time” and the world economies were supposed to “decouple”… remember? In an investment community where I have sat at the most relevant tables of debate, am I proud to have raised my hand on the other side of this macro trade? You bet. If its “hard to read” good research, that’s better than having an easy time reading what was plain bad research back then.

Einstein said, “great spirits have always encountered violent opposition from mediocre minds”, and it’s hard to disagree with that. Ask Michael Phelps how much adversity he has faced in his life. Gold is minted in it.

Have a great weekend,
KM