"Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do."
It's great to be able to speak your mind! When you speak your mind writing research, it's like working in a fish bowl - there is no escape and you are accountable for everything you say.
I have been writing research my entire professional career and I have learned to take the good with the bad. I like to take calculated risks; I'm not always right and being wrong when working in a fish bowl can be very painful. However, the reward for knowing that you have helped someone else be successful is amazing.
It was a calculated risk to go to work for a start up, independent research firm in the midst of a financial crisis not seen in generations. A year later we continue to take significant market share from broken business models. The employees at Research Edge have one thing in common - we are students of the markets and love getting stocks right!
Growing up I was a soccer player; a sport which most people think is boring. The sport of soccer is actually a thinking man's game. The best soccer players in the world are nimble and know where the ball is going to be before it gets there. The same is true for the market and individual stocks; know where they are going before they get there and you win! Play the game that is in front of you and you will be one step ahead of the competition.
Keith McCullough had never worked in a research fishbowl until he started Research Edge and we all are painfully aware that he did not play soccer! But over the past six months he has definitely been nimble and has known where the ball was going!
For 2009, the entire set up was prefaced on his "Breaking the Buck" macro call and for a generational short squeeze in most global equity markets. I don't think there is another MACRO strategist on the street that made that call! If there is, please let me know because I would like to tell him he should have been a soccer player too!
It is painful to watch those in charge of the country "react" to the buck breaking! After the market starts to melt down on concerns about our AAA credit rating and the mighty dollar crashing, Treasury Secretary Timothy Geithner goes on Bloomberg TV and says "It's very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term." His target is to reduce the gap to 3% of GDP from around 13% this year. Who is he kidding?
I know this is Obama speak, but let's be realistic. In the age of TRILLION dollar bail outs, the budget deficit is going up, not down. One thing you can be sure of is "the medium term" will not be during his tenure as treasury secretary and potentially not during Obama's term as president.
As we have said all year, the most dominant macro factor at work has been the US Dollar down and stocks up. For three straight days, it's been dollar down, stocks down; the dollar crashing is now a bad thing!
The Safety trade and reflation are the only two themes that still have legs in this market. The early cycle Consumer Discretionary and Technology name are breaking down, as we now only have 5 of the 9 sectors positive on both the durations of TREND and TRADE.
While our Macro team has been on fire this year, the research team continues to score big too. Today we are waking up to KeyBanc upgrading Autodesk (ADSK) from Underweight to Hold after the company reported better than expected numbers. ADSK has been in the virtual portfolio since 3/23 and looking to provide 50% return in just two months! Well done Rebecca! It's great to be on a real team again. Success is no accident.
Function in Disaster, finish in style
EWA - iShares Australia-EWA has a nice dividend yieldof 7.54% on the trailing 12-months. With interest rates at 3.00% (further room to stimulate) and a $26.5BN stimulus package in place, plus a commodity based economy with proximity to China's H1 reacceleration, there are a lot of ways to win being long Australia.
XLE - SPDR Energy- We bought Energy on 5/13 with the dollar up. We think it works higher if the Buck breaks down. Bullish TRADE and TREND remain.
CAF - Morgan Stanley China Fund- A close end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.
EWD - iShares Sweden-We bought Sweden on 5/11 with the etf down on the day and as a hedge against our Swiss short position. From a fundamental setup, we're bullish on Sweden. The country issued a large stimulus package to combat its economic downturn and the central bank has effectively used interest rate cuts to manage its economy. Sweden's sovereign debt holds a strong AAA rating despite Swedish banks being primary lenders to the Baltic states. We expect Sweden to benefit from export demand as global economies heat up.
XLV - SPDR Healthcare-Healthcare looks positive from a TRADE and TREND duration. We've been on the sidelines for the last few months, but bought XLV on a down day on 5/11 to get long the safety trade.
TIP- iShares TIPS -The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%. We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.
GLD - SPDR GOLD -We bought more gold on 5/5. The inflation protection is what we're long here looking ahead 6-9 months. In the intermediate term, we like the safety trade too.
EWJ - iShares Japan -We re-shorted the Japanese equity market via EWJ on 5/20. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.
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. Longer term, the burgeoning U.S. government debt balance will be negative for the greenback. The Euro is up versus the USD at $1.3962, a four-month low for the Dollar. The USD is down versus the Yen at 94.1150 and down versus the Pound at $1.5848 as of 6am today.
EWW - iShares Mexico- We're short Mexico due in part to the repercussions of the media's manic Swine flu fear. The country's dependence on export revenues is decidedly bearish due to volatility of crude prices and when considering that the country's main oil producer, PEMEX, has substantial debt to pay down and its production capacity has declined since 2004. 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 have had a consistently negative bias on Indian equities since we launched the firm early last year. Despite recent election results likely proving to be a positive catalyst, long-term 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.
LQD - iShares Corporate Bonds-Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates in the back half of 2009 that bonds will give some of that move back. Moody's estimates US corporate bond default rates to climb to 15.1% in 2009, up from a previous 2009 estimate of 10.4%.
EWL - iShares Switzerland - We 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.