This past week, amidst all of the noise in the loser land of corporate malfeasance, Bernanke sided with us and broke the buck. He put the hammer down on the US Dollar and finally re-flated where Americans need it most – their 401ks and home values.
In the face of the US Dollar having its biggest weekly decline since the Euro came into being (EVER), US Equities locked in their 2nd consecutive week of gains. With the SP500 closing up +1.6% on the week, the cumulative 2-week advance was a rip higher of +12.3%. If you missed the TRADE, don’t get upset with me; the trough-to peak squeeze was the most expedited we have seen over the span of 2 weeks since 1939. Stock markets can crash versus expectations, both ways.
The chart below depicts THE macro inverse correlation that’s mattered most since we moved to 96% Cash in September 2008. If you made sales into the intraday highs of Wednesday March 20th, congratulations. That SP500 intraday high of 801 marked a +18.5% branding (trough-to-peak) on the foreheads of every Depressionista short seller of the March 9th, 2009 YTD low. If the US Dollar Index can’t sustain a close above 85.10, look for the SP500 to breakout above 801 to 807.
The only thing worse than a underperforming hedge fund trying to explain why they didn’t hedge on the short side in February is going to be attempting to explain why they can’t make money on the long side in March either… Don’t you find it odd that all of the Great Depression Bears who are out there writing books only have a risk management process that works on the down moves? I do… Re-flation is not inflation. Re-flation can be a one day or a one week affair. Children learn this phenomenon at a very young age when blowing into balloons – it’s not that complicated.
Alongside the US Dollar deflating, commodities (CRB Commodity Index) re-flated a nice +7% on the week. Oil led the charge higher, adding another +12.5% to its 5-week winning streak, taking the 5-week run to +41%! Got Alpha?
All the while, I keep getting notes from Jimmy Cramer’s “Alerts” telling me to buy low beta so that his lawyers at the Street.com can attempt to control the losses in that Charitably Deflating Trust that he attempts to be accountable with… word to the wise, Jimmy boy, when Bernanke breaks the bone, don’t buy MCD and KO - BUY high BETA - Booyah!
Keith R. McCullough
CEO / Chief Investment Officer