This note was originally published
at 8am on July 18, 2012.
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“In West Texas in 1871, stealing someone’s horse was often equivalent to a death sentence.”
The only thing I don’t like about working on America’s West Coast is that room service doesn’t start until 8AM EST. I’m in San Francisco, California this morning. And, away from no oatmeal in my belly, I am loving it.
What I don’t love is when Chuck Schumer speaks. I get especially irritated when he speaks at people like he did with my good pal Ben Bernanke yesterday, telling him to “get to work” on some more money printing.
As S.C. Gwynne explains in an excellent new book I started reading on the flight down here, “Empire of The Summer Moon: Quanah Parker and the rise and fall of the Comanches, the most powerful tribe in American History”, stealing someone’s most valuable asset (in my case US Dollars) is not cool.
Back to the Global Macro Grind…
Admittedly, when it comes to explaining the basic concept of the Purchasing Power of your hard earned currency and how conflicted and compromised politicians are attempting to debauch it for the sake of their short-term career risk, I can’t walk a horse to water.
I can, however, steal away into the night and watch the only thing that matters in scoring the efficacy of what Chucky Schumer wants more of (Qe drugs) – Mr. Global Macro Market.
Mr. Macro has been giving plenty a buy-and-hold Keynesian a performance death sentence since the SP500 was +14.9% higher in October of 2007. While the same ‘growth is good, earnings are great, and stocks are cheap’ crowd still needs the SP500 to rise another +5% to get back to their 2012 break-even, here’s what the rest of the world’s country signals are telling me this morning:
- CHINA – the Shanghai Composite Index remains a rock solid leading indicator for the slope of Chinese economic growth, and it remains in what we call a Bearish Formation (bearish on all 3 of our core risk management durations – TRADE/TREND/TAIL)
- JAPAN – the Nikkei225 opened up (after the US closed up) then finished on its lows last night. Its -0.32% loss on the session doesn’t matter as much as the context of its failure to recapture its only remaining line of support (8794)
- SOUTH KOREA – the KOSPI got blasted for another -1.5% loss last night after Intel said that they are hoping for +3-5% sales growth in 2012 (vs high single digit growth expected prior); KOSPI is a great leading indicator for Tech/Industrial demand
- EUROPE – the EuroStoxx50 looks like the SP500 (better than China, Japan, or KOSPI); that doesn’t mean that it looks good for anything more than what’s in the rear-view mirror off the lows (TRADE support = 2213; TREND resistance = 2282)
- SPAIN – the Spanish IBEX looks like the Comanches stole their horses again; leading losers this week and falling right back into crash mode (> 20% peak/tough decline) at -26.5% from March; Bearish Formation
- ITALY – the MIB Index looks like it’ll be walking barefoot until the German Parliament votes to ratify more #BailoutBull on September 12th; down again this morning and moving back into crash mode, down -21% from March
- BRAZIL – the BOVESPA has had zero bid since the Brazilians cut interest rates last week, so the perma 3-4% Global GDP crowd can talk about the 199 global “easings” all they want, but the BOVESPA is still crashing (down -21% since March 14th)
- CANADA – the TSX Composite Index looks a lot like the Eurostoxx50 and the SP500; bullish TRADE (barely) and bearish TREND (with TSX TREND resistance overhead at 11,991); Canada is a great place to live if you have a big hat (and cattle).
Then, of course, we have the good ole United States of America. The home of the 112th Congress, Ben Bernanke, and the brave. Across its big 3 leading market indicators, here’s how she looks:
- STOCKS (SP500) – bullish immediate-term TRADE (1351 support); bearish intermediate-term TREND (1365 resistance)
- BONDS (10yr) – Bullish Formation for bonds; Bearish Formation for yields; immediate-term risk range = 1.46-1.54%
- CURRENCY (USD) – Bullish formation (bullish across all 3 durations) with immediate-term TRADE support = $82.31
So, what does it all mean?
- GROWTH – slowing, at an accelerating rate, globally in Q2/Q3 versus where all of Washington/Sell-Side consensus was in Q1
- INFLATION – slowing through June, but setting up to re-accelerate where it matters to Global Consumption Growth in July (food and energy prices have v-bottomed since late June)
- POLICY – who cares? The manic media continues to scramble for whatever remains of their ratings, but The People are putting this entire thing (including fund flows) on mute. This is a No Trust; No Volume Global Equity market; TREND intact.
So what do you do?
- Maintain a large Cash position and keep your gross exposure to equity and commodity markets low
- Manage your net exposure to all markets, including the bubbliest of them all (bonds) tight
- And Fade Beta (buy red, sell green) –just beat the 93% of hedge funds who have become beta and you’re fine
If all of this is frustrating you, join the club. Global Macro’s interconnected risk (countries, currencies, commodities, etc.) has never been more obvious. Stock pickers are meeting their maker inasmuch as Macro gurus are meeting theirs. As Gwynne reminds us, this was no different in 1836 when different worlds were in collision (Whites and Indians):
“The meaning of their meeting, and the moment itself, became completely clear only in hindsight.” (page 23)
My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1559-1583, $100.82-103.68, $82.76-83.98, $1.20-1.23, 6457-6699, and 1351-1365, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer