The Global Macro Pants

Waking up in the early morning to a global macro investment process that you can hang your hat on will pay off in 2008. As many US centric investors are being forced to realize, many more factors affect global markets than their recent “one on one” with a US company’s CFO. It’s “Macro Time”, and successes will be born where proactive investment preparation meets opportunity.

Let’s put the global macro pants on and take a walk to Asia. Yesterday, we called out Thailand’s developing economic problems. This morning, in a sentence, I can show you the domestic political unrest associated with those problems. If you want to find where people’s emotions rest, follow the money. This morning’s headline from Bloomberg out of Thailand is as follows: “Thai protesters stormed Prime Minister Samak Sundaravej's office compound and occupied a state- run television station, meeting little police resistance as the government avoided violent clashes that might force its collapse”…

Thailand’s stock market closed down another -2% over night, and the Thai Baht hits new year to date lows, daily. While China’s stock market lost another -2.6% last night, taking its fall from the “its global this time” October 2007 highs to -61%, the point here is that the contagion associated with slowing growth and accelerating Asian inflation is starting to spread. The Thai Stock Exchange is down -25% now since May 21st. This is Southeast Asia’s 2nd largest economy. This chase to the Chinese YTD percentage declines is called geographic mean reversion.

Maybe we should all run out and “buy the dip” and scoop up some of them Asian Country ETF’s (Exchange Traded Funds) – uh, no. From Japan (EWJ), to Korea (EWY), to Taiwan (EWT), these snake oil salesman index products have provided everyone from the Harvard Endowment to Joe Globally Diversified nothing but headaches in the last 3 months. Does anyone remember the Asian currency crisis? The Korean Won is down -7.3% since mid July alone, and hitting its lowest level since 2004 this morning. Those who do not respect history’s lessons, are unfortunately doomed to repeat them.

Global growth is slowing faster than Wall Street understands. Stock markets are leading indicators, and you can pull up any Asian ETF and run the math on how far they have fallen in 2008. If you’re more of a short term trading type, don’t bother with the YTD numbers. Try a 5 day chart of Pakistan since Musharraf left – that’s down -14.5%, in a straight line.

As Asia slows, Europe is feeling it, big time. That’s one reason why the Euro currency is hitting a 6 month low versus the US Dollar this morning. London was closed for trading yesterday, but opened this morning’s session down -2%, breaking my short term momentum support level. The S&P 500 did the same yesterday. That level in the FTSE is 5412, and for the S&P 500 its 1274. When it’s “Macro Time”, I respect the math, above all else.

The Minister of Finance in Copenhagen definitely respects the math. This morning he is cutting Denmark’s economic growth forecasts well into 2009. His outlook suggests that economic stagflation is going to be a protracted process. Remember that Denmark was the 1st economy in the European Union to officially move into a recession. Now the dominos are falling. As cost of capital increases, globally, and access to it tightens, the “Trend” in Europe remains the same as that in the US. It’s negative, and deteriorating.

On a cheerier note, the full court media press is on Dick Fuld. So I won’t have to harp on his missing the macro call much longer, I hope. Fortunately, the short squeeze rumor of the Korean Development Bank buying Lehman didn’t come to fruition. The implications of Singapore owning Merrill Lynch, and Korea owning Lehman Brothers, are not those that will enhance Transparency in the US Financial system. As Asian growth slows, so will the currency adjusted growth of the cash in their “Sovereign” coffers. The US Dollar is now +8% since July 14th. I maintain that’s where you need to be. For now, US denominated cash, remains king.

Good luck out there today,
KM



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