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Chart of The Week: January 2009

What a ride January ended up being. In the end, it was actually the worst January ever. Yes, ever is a long time.

January’s record setting SP500 performance came in at -8.6%, and good margin past the prior record of -7.7% in January of 1970. Interestingly, on a peak of the month to the trough of the month basis, the SP500 dropped from 934 on January 6th to 805 on the 20th – that was a -13.8% swan dive… then it rallied +8.5% straight up and into a CNBC instigated “bad bank bailout” lower high of 874, before being eaten by the shark line (see chart below), where we we’re fortunate to proactively move to 82% cash.

On the week, the SP500 was down -0.7% (our virtual portfolio was -0.4%). It was that 2-day shark bite (Thursday-Friday) that seemed to catch some people off guard.

Our Hedgeye Asset Allocation model ended up down -1.74% for the month (no stocks, just ETFs). While I am sure that wasn’t the worst performance in the league, I am not pleased with it. No excuses – we move forward into February.

Keith R. McCullough
CEO / Chief Investment Officer

Quote Of The Week: Barack Obama

"That is the height of irresponsibility. It is shameful… Part of what we're going to need is for the folks on Wall Street who are asking for help to show some restraint, some discipline and some sense of responsibility" –Barack Obama

This quote, and Joe Biden officially welcoming “organized labor back to the White House” sealed the deal this week for the US stock market to have its worst January ever (down -8.6% vs. January of 1970 which was next worse at -7.7%).

Pictures are often more powerful than prose. The Reuters picture in Joe Nocerra’s NY Times article (below) captures a look on Timmy Geithner’s face that I found to be a metaphor for a lot of things, not the least of which is a New York banker who should be grateful to now be receiving a stable government paycheck. The good ole boy days of the self perpetuating bullish narrative fallacy are gone.

This altogether scares Wall Street, and it should. Unionization (Biden) is no different that Re-Regulation (Obama) in that no matter what your politics are, they have the factual impact of depressing the corporate profit margins of some of the fat cats in America’s corporate Board Room.

Make no mistake, there are plenty of corporate execs who completely missed proactively preparing for this downturn – this isn’t just a Wall Street thing. They paid themselves large to overbuild capacity at a global economic top (Coach, Target, Caterpillar, etc…), and they’ll keep paying themselves as they fire people at the bottom.

While the pricing in of this corporate incompetence isn’t new (the Dow has only 400 points left of downside if the 4 US financials in the Dow actually went to zero), it is surely a reminder that The New Reality that we have been belaboring for a long time now, is here.


We’re not always right but I think we’re accumulating a pretty good track record. Our process marries fundamental analysis with Keith McCullough’s macro/market view and his quantitative factor model. This process drives the stock selections that comprise our Hedgeye portfolio. Keith pulls the trigger and his record speaks for itself.

The table below lists every hypothetical trade made in the Hedgeye portfolio in the gaming, lodging, and leisure sectors. I’ve also included the unrealized gains and losses from names in the current portfolio.

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US Market Performance: Week Ended 1/30/09...

Index Performance:

Week Ended 1/30/09:
DJ (1.0%), SP500 (0.7%), Nasdaq (0.1%), Russell2000 (0.2%)

January (A) and 2009 YTD:
DJ (8.8%), SP500 (8.6%), Nasdaq (6.4%), Russell2000 (11.2%)

Keith R. McCullough
CEO / Chief Investment Officer

SP500 Levels Into The Close

In this morning’s Early Look, we signaled a warning that “if the SP500 breaks the 839 level, I have 804 as next support.” Now that line (see chart below) of support is 802 – as the math changes, I do.

Given that the US Dollar remains the dominant macro headwind for the US stock market, and that the US Dollar is up another +0.63% here at 86.03, this weakness shouldn’t be a surprise. When macro factors dominate and momentum lines break, this is what happens. This market trades on price momentum, not valuation.

Last Friday, everyone and their brother was talking about a “weekend bailout” pending. Today, I am hearing less and less of that… hope, after all, is not an investment process. Be patient. Be liquid. Be your own process. We have 11 months left in this year’s game – we’re just getting started.

Keith R. McCullough
CEO & Chief Investment Officer

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