Beach Time?

“I’m going to lie on the sand and watch the world go to hell.”

-William Bullitt Jr.

That’s not a very nice thing to say now is it? Young Yale men can get pretty emotional when they go out into the real world and get told they are wrong. In 1913, William Bullitt was voted the “most brilliant” man at Yale. I am not sure what that means, but trying to do a deal with Lenin probably changed his classmates’ minds on that, eventually.

Brilliant is as brilliant does. Yesterday may have been one of the best days to sell everything and go to the beach for the rest of the summer. I doubt it, but we’ll see. Every morning we reserve the right to change our mind. That’s the upside to not working for the government. Poor Bullitt (he was a rich kid from Philadelphia actually) didn’t share our self-deterministic luxury.

In 1919, “Bullitt and Steffens spent a wonderful week in Moscow: accommodation in a confiscated palace, piles of caviar, nights at the opera…” etc. Life was indeed #brilliant, until he came back to Paris and Wilson bagged his idea to appease the Bolsheviks. Lenin later recalled that the young American diplomats were “useful idiots” (pages 78-81, Paris 1919 by Margaret Macmillan).

Back to the Global Macro Grind…

I don’t do beach. At least not now. I have work to do, a family to feed, and a firm to build. It’s mid-June and its really only the 2^nd day in the last 6 months where I woke up thinking, wow – the world might actually start going to hell again.

When I say I “think”, I mean the Global Macro market’s interconnected signals are making me think. When I was Bullitt’s age (28 years old at the Paris Peace Conference) I wasn’t yet married and I thought in very different ways!

I was a lot more bullish on US Consumption oriented Equities < 1601 in the SP500 last week than I was 50 handles higher yesterday. At 11:02 AM EST I wrote a note titled “Sell Some: SP500 Levels, Refreshed.” The research view didn’t change; my risk signals did.

To review the what on that (which is usually more important than the why):

1. SP500 signaled it’s 1^st lower-high in my model in months (1662 resistance vs YTD closing high of 1669)
2. US Equity Volatility (front month VIX) signaled a higher-low at 13.77
3. US Dollar signaled immediate-term TRADE overbought on the open versus the Japanese Yen

Get the Dollar right, and you’ll get other things right. You don’t have to be brilliant to embrace the uncertainties associated with that. When I make big moves in either Real-Time Alerts or the Hedgeye Asset Allocation Model, it almost always starts with a USD signal.

Since we’ve already beached our asset allocations to both Fixed Income and Commodities (0% on both), our only risk management exercise this summer is deciding how big we get (and when) on this US Consumption LONG versus Commodities SHORT position.

For now, the intermediate-term TREND ranges for US Equities and volatility are as follows:

1. SP500 = 1
2. VIX = 13.77-18.98

Again, you’ll note that what’s new in that 2 factor model is:

A)     Lower-highs for US stocks

B)      Higher-lows for US equity volatility

Plenty will quibble with how my models work, and that’s perfectly fine with me. I don’t have time to do anything other than what we are already doing here at the firm. So my own risk is going to be doing more of that.

The beauty of operating from the opposite perspective as brilliant central planners who promise you certainty (Obama just called his freshly minted Keynesian, 42 year old Harvard boy, Jason Furman, “one of the most brilliant minds of his generation”) is Embracing Uncertainty. We have no idea what tomorrow is going to tell our model.

Here’s all I am certain about as of this morning (this could change by tomorrow, but probably not):

1. Japan’s Weimar Nikkei is now bearish TREND (resistance = 13,849)
2. Japanese Yen (vs USD) remains bearish TREND (resistance = 96.05)
3. US Dollar Index remains bullish TREND ($81.21 = support)
4. South Korea’s KOSPI is back to bearish TREND (resistance = 1968)
5. Hong Kong’s Hang Seng is bearish TREND (resistance = 22,438)
6. India’s BSE Sensex is bearish TREND (resistance = 19,692)
7. Germany’s DAX is bullish TREND (support = 8112)
8. UK’s FTSE is bullish TREND (support = 6281)
9. Spain’s IBEX is bearish TREND (resistance = 8361)
10. Russia’s RTSI is bearish TREND (resistance = 1472)
11. Brazil’s Bovespa is bearish TREND (resistance = 56,191)
12. Commodities (CRB Index) remain bearish TREND (resistance = 296)
13. Gold remains bearish TREND (resistance = 1581)
14. Old (Brent) remains bearish TREND (resistance = 108.31)
15. Copper remains bearish TREND (resistance = 3.51)
16. Japanese Government Bond yield (10yr) is bullish TREND (0.79% support)
17. US Treasury Bond yield (10yr) remain bullish TREND (1.83% support)

And it goes on and on and on …

Multi-factor, multi-duration. That’s how we roll. And as you’ll quickly note, there are plenty of places to be bearish in this world. The problem with consensus US stock market bears in 2013 is that they weren’t bearish enough on many of these things – primarily because they weren’t bullish enough on US #GrowthAccelerating.

Gold and Sovereign Credits (Japan and USA) loathe growth. And while the Japanese won’t get real (inflation adjusted) economic growth in the end anyway, at least their Keynesian duo of Abe/Aso will get plenty of beach time. We can only pray that they lose their jobs fast. Never mind the beach, dealing with their and Furman’s “brilliance” every morning might just drive me to the bottle.

Our immediate-term Risk Ranges Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Nikkei, and the SP500 are now $1, $100.21-105.04, $81.21-82.42, 96.05-99.55, 2.14-2.26%, 14.07-17.69, 129, and 1, respectively.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer