Marking-To-Madoff

"The memories of men are too frail a thread to hang history from."  
~John Still, The Jungle Tide

Ah the memories ... after a +23.3% four-week meltup in the SP500, the days of the Great Depressionista flying around in his Dark Lord helicopter now seem so far far away... get them crackberries fired up, and let's get this American mania right back to where it's always been!

This morning, it's only fitting that AFTER the US stock market has handsomely paid those who invested when they should have (I know, the "long term" guys called those who bought low "traders") that the relic of the $145/share RIMMer is back! Never mind that it's now a $50 or $60, or heck - a $70 dollar stock - who has memories of such silly things like math, when we can socialize this country to smithereens, Break The Buck, and REFLATE just about everything you can buy with that US Dollar!

America's global leadership currency certainly isn't what it used to be. Away from it being implied at the G-20 meetings in London, at home we ensured that yesterday by Marking-America-to-Madoff. As much as reading that might taste like chewing on a cat's tail, basically that's what we're doing here in the USA - and oh, boy isn't it fun for an immediate term TRADE! Or is it an intermediate term TREND? Or is it fun?

Why yes, Dear Main Street Client, that is indeed what all of this is - a TREND of breaking the integrity of this fine nation's financial system, and TRADING our handshakes for the ability to change the rules of everything from American accounting standards to who knows what's next - all for the benefit of those who really "can't handle the truth" of marking their performance to market. Never say you never thought you'd see the day - you're seeing them right here and now, live!

What would America's finest intellects of everything financial engineering do if, say, the Chinese changed their accounting rules in the middle of the game to benefit those who cozy up to government? Ah the memories of those people in China who "make up their numbers" that we'd have...

The most dominant driver of 2009 US stock market performance continues to be the US Dollar. Yesterday, the inverse correlation we have been barking about between US Equities and USD was as clear as Jack Nicholson's response on Tom Cruise's trial in 'A Few Good Men' - "crystal". And now, AFTER the REFLATION leading indicators from Dr. Copper to a steepening of the American Yield Curve are in the rear view mirror, we can all wrap up this week and get ready for Barron's to proclaim that the bottom for the US stock market in 2009 is in...

Three weeks or so ago, I was on CNN and said two things that garnered the attention of plenty an angry Bear anonymous emailer who is hurrying to publish his Great Depression book: 1. "The stock market bottomed on March 9th" and 2. "US Housing will bottom in Q2"... call me a hockey knucklehead, or call me brave - plenty of my boys back home in Thunder Bay call me the former anyway. This is what we men of the ice do - take the shots that no one wants to take...

The squirrely thing about all this "market bottoms are processes, not points" stuff that I riff about, is that it was fairly predictable. Much like calling the topping process of global markets in 2007, most people with an objectively proactive investment process called this. It wasn't that complicated.

What is complicated is understanding how some of these artists of having money to manage will be explaining to their investors how it is that they missed the crash here on the way UP. Market's crash on the way UP - pardon? Ask someone who has been running net short for the last 4-weeks what's happened to their client's moneys...

Crashes, I think, are simply what happens versus consensus expectations. If the move is equal to or greater than 18% in one direction, at an expedited pace, my Macro team here in New Haven calls it a crash.

You can call it getting run over, crashing, or whatever - it's happening all over the world right now, particularly in places that REFLATE when the US Dollar DEFLATES. Check out that lonely ole West Texas soul of an asset class for instance - crude oil is up another +2% this week, taking its REFLATION rally to 7 consecutive weeks and adding up to a +45% move.

How about them American "Tech Wrecks" that our Tech guru, Rebecca Runkle, and I have now re-labeled as "Tech Specs" - the S&P Technology Sector etf (XLK) is +25% in the last 4 weeks, and now trading +7% for 2009 to-date! Depression? Not so much... and you gotta love anything American that we can make up the accounting on, and sell it to the Chinese for cheaper US Dollars! Pardon??

Yes, no matter how much money you're making on this REFLATION trade, it's actually all quite sad when you really take a step back and think about what's happening in this country. One of our more astute clients emailed us yesterday looking for my immediate term upside target in the SP500... so I sent him the number with the following note: "today is the most profitably sad that I can remember - does anyone not chase?"...

Understanding where this market is going next is one thing - that's how we feed our families and pay the bills. Marking-America-to-Madoff is an entirely different thing - and for now at least, all I can do is hope and pray that the crackberries don't take hold of our long term vision of what makes America great, forever.

My immediate term risk/reward outlook for the SP500 is balanced now at +1/- 1% (SPX 825 and 844).

Thanking God that it's Friday,
KM


LONG ETFS

RSX - Market Vectors Russia-The Russian macro fundamentals line up with our quantitative view on a TREND duration. Oil has benefited from the breakdown of the USD, which has buoyed the commodity levered economy. We're seeing the Ruble stabilize and are bullish Russia's decision to mark prices to market, which has allowed it to purge its ills earlier in the financial crisis cycle via a quicker decline in asset prices. Russia recognizes the important of THE client, China, and its oil agreement in February with China in return for a loan of $25 Billion will help recapitalize two of the country's important energy producers and suppliers.  

USO - Oil Fund- We bought oil on Wednesday (3/25) for a TRADE and are positive on the commodity from a TREND perspective. With the uptick of volatility in the contango, we're buying the curve with USO rather than the front month contract.  

EWC - iShares Canada-We bought Canada on Friday (3/20) into the selloff. We want to own what THE client (China) needs, namely commodities, as China builds out its infrastructure. Canada will benefit from commodity reflation, especially as the USD breaks down. We're net positive Harper's leadership, which diverges from Canada's large government recent history, and believe next year's Olympics in resource rich Vancouver should provide a positive catalyst for investors to get long the country.   

DJP - iPath Dow Jones-AIG Commodity -With the USD breaking down we want to be long commodity re-flation. DJP broadens our asset class allocation beyond oil and gold. 

GLD - SPDR Gold- We bought more gold yesterday (4/02). We believe gold will re-assert its bullish TREND as the yellow metal continues to be a hedge against future inflation expectations.

DVY - Dow Jones Select Dividend -We like DVY's high dividend yield of 5.85%.


SHORT ETFS

UUP - U.S. Dollar Index - We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. The Euro is down versus the USD at $1.3448. The USD is up versus the Yen at 99.8870 and down versus the Pound at $1.4776 as of 6am today.

EWL - iShares Switzerland - We shorted Switzerland for a TRADE on an up move Wednesday (3/25) and believe the country offers a good opportunity to get in on the short side of Western Europe, and in particular European financials. Switzerland has nearly run out of room to cut its interest rate and due to the country's reliance on the financial sector is in a favorable trading range. Increasingly Swiss banks are being forced by governments to reveal their customers, thereby reducing the incentive of Switzerland as a tax-free haven.

EWJ - iShares Japan - Into the strength associated with the recent market squeeze, we re-shorted the Japanese equity market rally via EWJ. This is a tactical short; we expect the market there to pull back when reality sinks in over the coming weeks. Japan has experienced major GDP contraction-it dropped 3.2% in Q4 '08 on a quarterly basis, and we see no catalyst for growth to return this year. We believe the BOJ's recent program to provide $10 Billion in loans to repair banks' capital ratios and a plan to combat rising yields by buying treasuries are at best a "band aid".

DIA -Diamonds Trust-We shorted the DJIA on Friday (3/13) and Tuesday (3/24).

EWW - iShares Mexico- We're short Mexico due in part to the country's dependence on export revenues from one monopolistic oil company, PEMEX. Mexican oil exports contribute significantly to the country's total export revenue and PEMEX pays a sizable percentage of taxes and royalties to the federal government's budget. This relationship is unstable due to the volatility of oil prices, the inability of PEMEX to pay down its debt, and the fact that PEMEX's crude oil production has been in decline since 2004 and is down 10% YTD.  Additionally, the potential geo-political risks associated with the burgeoning power of regional drug lords signals that the country's economy is under serious duress.

IFN -The India Fund- We re-shorted India yesterday (4/02). We have had a consistently negative bias on Indian equities since we launched the firm early last year. We believe the growth story of "Chindia" is dead. We contest that the Indian population, grappling with rampant poverty, a class divide, and poor health and education services, will not be able to sustain internal consumption levels sufficient to meet targeted growth level. Other negative trends we've followed include: the reversal of foreign investment, the decrease in equity issuance, and a massive national deficit. Trade data for February paints a grim picture with exports declining by 15.87% Y/Y and imports sliding by 18.22%.

XLP - SPDR Consumer Staples- Consumer staples was the third worst performing sector yesterday. This group is low beta and won't perform like Tech and Basic Materials do on market up days. There is a lot of currency and demand risk embedded in the P&L's of some of the large consumer staple multi-nationals; particularly in Latin America, Europe, and Japan.

SHY - iShares 1-3 Year Treasury Bonds- On 2/26 we witnessed 2-Year Treasuries climb 10 bps to 1.09%. Anywhere north of +0.97% moves the bonds that trade on those yields into a negative intermediate "Trend." If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yield is inversely correlated to bond price, so the rising yield is bearish for Treasuries.


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more