"Neither shall you allege the example of the many as an excuse for doing wrong."
After the market close last night, I went for a run. It was windy and getting dark, and I could see my friend, the raccoon, taking cover in his usual spot in this great big old tree near the end of my road. He’s one of them fat 15 pound garbage eating raccoons. He thinks he’s smart… but I know where he sleeps when he thinks no one is looking. The end of his tail is a dead giveaway…
Raccoons, like some people in the hedge fund community, have a distinct facial mask. They genuinely believe that they are smarter than everyone else. They are extremely sensitive and, per Wikipedia, they “are able to remember the solution to tasks up to three years later.” Traffic accidents, and now short squeezes, are two of their most common causes of death.
Having spent the last decade hanging around the hedge fund community, I have come to appreciate the quality of research originated by some of the most upstanding and thoughtful people I have ever met. I am fortunate enough to now call a lot of those people both friends and clients. It is both a pleasure and a privilege to do business with all of you. You are the men and women who are going to lead us out of this mess. You are men and women of principle.
I have also met a lot of raccoons in this business. They like to steal, collude, and trade ahead of other people’s work. Ordinarily, I would preface that comment with “unfortunately”… but I actually feel blessed to have met these creatures, analyzed where they sleep, and figured out the patterns by which they operate.
For some of you whose attention I have at this stage of my missive… yes, I am talking to you. Did you really think you were getting away with not paying for our research? I am now telling you that I have been watching you, and keeping really good notes. It’s not just the bankers who are going to be held accountable to the rules of The New Reality. Sorry.
Yesterday, at 3:18PM I posted a note to our Macro clients that was titled “Covering/Buying: SP500 Levels Into The Close” (www.researchedgellc.com <http://www.researchedgellc.com> ). Making that call ended up generating a tremendous amount of feedback, so let me thank all of you for your very kind words and compliments last night. While I have spent the better part of my career on the “buy side” of information flow, I finally understand the power of helping other teams win rather than just my own. It’s a wonderful feeling.
After an outstanding 25 point (+3%) move in the SP500 in the last hour of trading, what do we do now? Do we chase the raccoons and the gold diggers? Do we hold back? Do we do nothing? As corporate America has been taught to say on their conference calls, these are all “great questions”… and my answer is quite simple – stay with the proactive plan that we’ve had in place. Everything has a price.
In my “Gold Diggers” note yesterday I said “my downside target for the SP500 is 808. I am short the Dow, and I still think that the US market continues to make higher lows on selloffs.” The only part of that strategy that I have to edit is that I am no longer short the Dow – I covered it at 3:22PM in the Hedgeye Portfolio, and I will be looking to re-short it when it’s up. The SP500 still has -3% immediate term downside from last night’s 835 close. Nothing has changed here, other than price.
The price of gold has backed off of the predictable “Fast Money” immediate term high that we signaled, trading down to $935/oz so far this morning. I am in that “Trade” (on the short side) for a 3% move, partly because I love to play the game, and partly because I love shining the flashlight on raccoons. While a 3% move isn’t going to make a man rich on a principal basis, it does solidify one’s principles. Wall Street, sometimes, has a hard time delineating the difference between those two words – they are pronounced the same, but have materially different definitions.
If you’re mantra is “make money” – that’s cool. That’s capitalism, and I support your message. All the while, don’t forget that in The New Reality, you will be held accountable for how you made that money. If you asked for bailout moneys, you are going to be regulated. If you are in a Madoff camp, you are going to be unearthed. If you are found taking other people’s intellectual property, or trading ahead of non-public material information, you will have the flashlight shone on you.
As we head into President’s day weekend, rather than pointing fingers at partisan politicians and pandering banking CEOs alike, I think we should all take a few steps back, put the crackberries down, and think long and hard about how we can take our financial system back from the raccoons.
They, of course, aren’t just “hedgies” and bankers. This is an urban migration that has been around for a long time. They are in your neighborhoods. They “allege the example of the many as an excuse for doing wrong.” They will be smoked out of their holes. We can all figure out where they sleep – all we have to do is look.
Have a relaxing weekend with your families and loved ones – we all need it.