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This note was originally published at 8am on June 25, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Who knows, maybe they are much better off the way they are.”

-Mitchell Zuckoff

That’s a quote that I underlined this weekend in an unbelievably true WWII story of disaster, discovery, and survival – Lost In Shangri-La, by a professor of Journalism at Boston University, Mitchell Zuckoff.

Since last Thursday I’ve been lost in my own cash position. It’s weird, people keep asking me when and where I am going to put some cash to work. Who Knows? I’m in no hurry. All I can tell you is that I am getting longer of books, in US Dollars.

If you can tell me, precisely, how this all ends (other than not well), I’ll have to risk manage the timing of your view. These markets are as volatile and reactionary as the central planners who are attempting to “smooth” them.

Back to The Global Macro Grind

I have no idea what risk management moves I am going to make each and every day. I wake-up in the morning, put one shoe on at a time, then grind through the process. Embracing the uncertainty of what Mr. Market is going to signal is what I do.

Last week’s uncertainty was solely concentrated on 1 central planning event – Ben Bernanke’s presser. After he didn’t deliver the drugs, the Dollar went straight back up – and everything big beta priced in US Dollars went straight back down.

Here’s how that looked week-over-week:

  1. US Dollar Index = +0.77% (up for the 1st week in 3)
  2. SP500 = down -0.5% (down for the 1st week in 3)
  3. CRB Commodities Index = down -1.8%
  4. WTIC Oil = down -5.2% (crashing, down -27% since February)
  5. Gold = down -3.9% (testing down for 2012 YTD)
  6. Russian stocks (RTSI) = -5.1%

Russian stocks? Yep. Russian stocks have been crashing alongside the price of The Petro since March. That’s why we call Russia a Petro-Dollar tape. Get the Petro and the Dollar right, and you’ll get Russian stocks right.

Whatever happened to the bull case for “de-coupling”? Is Oil going down because of the Dollar or Demand? They’ve changed their bullish thesis so many times already in 2012 that it’s getting hard to keep track.

Who Knows?

What I do know is that people who didn’t pay attention to the Correlation Risk in this market are Lost In Q2. Where do we go from here? Do we beg, print, and bail some more? Maybe doing more of the same will work this time? Maybe ‘this time is different.’

Right. And Ben Bernanke is going to bailout China this morning too.

Chinese stocks have been leading decliners for the last few weeks as Chinese #GrowthSlowing appears to be accelerating on the downside. Last night the Shanghai Composite Index was down another -1.6%. It’s been down -9.2% since the beginning of May.

At the beginning of May, there was plenty of opportunity to get out of stocks and commodities. But that’s not how consensus rolls. Instead, those addicted to the Qe drugs keep going back to the same old well of hope.

Look at last week’s CFTC Commodities speculation data (ahead of the Fed decision):

  1. Net long contracts on the Commodities basket were up +7% wk-over-wk to 628,540 contracts
  2. Agriculture bets ripped a +13% wk-over-wk move
  3. Gold saw a net long ramp of +5% wk-over-wk to the highest net long (notional) position since May 1st

Go back to May 1st and tell me how buying Gold around $1660 played out. Or go back to the beginning of last week, when these net long contracts perked back up, and tell me how not selling into the expectation of a Bernanke Bailout bounce to $1628 paid.

It’s all the same trade, over and over, and over again. With the difference being that this time Ben S. Bernanke’s Fed is out of bullets. Could he poke his head back into our lives in the coming days, weeks, or months? Who Knows. All I can do is proactively prepare for what I can see in front of me and, at the same time, have Mr. Market signal to me whatever else I might be missing.

In the US, I’m not missing this week’s Macro Catalyst Calendar:

  1. Monday: US New Home Sales “expected” to be a lofty 346,000 (an acceleration from April’s high, Who Knows?)
  2. Tuesday: US Consumer Confidence (June) “expected” to rise to 63.5 vs 61.9 in May? (Who Knows?)
  3. Wednesday: US Durable Goods (May) “expected” to rise +0.5% vs May (doubt that, but Who Knows?)
  4. Thursday: Will US GDP for Q1 be revised lower than 1.9%? Will Jobless Claims eclipse last week’s high for 2012?
  5. Friday: US PMI for June “expected” to be in-line with May’s 52.7, Who Knows?

All the while, of course, we’ll have the Eurocrats saving the world by piling more debt-upon-debt (EU Summit June 27-28th). Even though the German Parliament needs to ratify anything ESM after the EU Summit (June 29th); and even though the Italians are publically patronizing the Germans ahead of that vote; Who Knows?

All I know is that I don’t know until I know. And that’s why, for now, I’m largely in Cash.

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, German DAX, and SP500 are now $1563-1591, $89.06-94.79, $81.95-82.62, $1.24-1.26, 6075-6235, and 1318-1335, respectively.

Best of luck out there this week,


Keith R. McCullough
Chief Executive Officer

Who Knows? - ChartoftheDay

Who Knows? - vp 6 25