"A more sober analysis suggests we're closer to the bottom; there is light at the end of the tunnel, but it's going to take a while longer, and..."
"And..."... After flying around in helicopters and feeding the manic media with his Doctor Depressionista interviews for the past 3 months, the man, the myth, the legend has revealed himself this morning - Tah-Dah, its Roubini The Revisionist!
Not unlike most "economists", Roubini is susceptible to gravity. The gravity of marked-to-market prices that is. Prices don't lie; people do. "And..." a +34.6% move in the US stock market since March 9th will apparently "sober" up one's views. Well done Nouriel! You can now go back to being just another economist who made a big call.
"Making the call" is what we all get paid to do in this business. Sometimes we're right, sometimes we're wrong. Being really right can make you eight to nine figures, and being wrong, well... depending on who you work for... sometimes has no downside at all!
One of my passions in life is calling people out. Call it aggressive, or call it plain dumb - I am a hockey player by training don't forget, and that's just what I do. Whether its holding Hank The Market Tank Paulson or Roubini The Revisionist accountable, it's all one and the same. Someone may as well do it.
Revisionist historians have populated Wall Street for over a hundred years. Once we get through month's end, you can expect to see plenty of their writings from the hallowed halls of the once vaunted sell side "strategist" who is now parroting the 6 month old REFLATION call, to the buy side. This is what makes this game so entertaining to observe.
Right on schedule, after the US stock market put in another lower-high yesterday, you're seeing 74% of America's finest revisionists presciently predict that the US recession could end by Q3 (as in 6 weeks from now). How wonderfully late this reactive prediction is from the National Association of Business Economics. I'll spare the revisionist participants the embarrassment of reminding you what their "forecast" was in February (hint: it was closer to Roubini's)...
"A more sober analysis" suggests that the prior analysis involved what? A few cocktails? God knows what Roubini does when no one is looking, but assuming he is as careful with his words as one should expect a soothsayer to be, I'll take his word for it.
The New Reality is simply that very few analysts, strategists, or economists called the top of the 2007 US market move as well as the bottom of the 2009 one. Is that a surprise? Hardly. But Washington and Wall Street should be learning a very important lesson from this - reactive analysis provides performance paralysis.
If our Almighty Ones are now admitting to sipping from the ole Sapporo without a proactive plan to address what Breaking The Buck could equate to, how in God's good name should we entrust our children's futures with their latest predictions? At what point in the last 18 months would you have been well positioned if aligned with the consensus of 74% of "economists"?
An understanding of the difference between a US currency breaking down versus one that's on a crash course for a crisis would seemingly require one to have understood the REFLATION call from its inception.
As CNBC rolls out the revisionists, I think we are going to roll right into lower-highs. If the US stock market finds a way to break out to higher-highs in the face of a pending currency crisis, I'll be the first to admit that I had the latest leg of my 2009 market call wrong. As prices change, I will.
Here are some immediate-term domestic price levels to focus on:
1. SP500 levels of 934 (January 6th) and 929 (May 8th)
2. Nasdaq 1764 (May 4th)
3. Russell 2000 levels 507 (January 6th) and 511 (May 8th)
I know, we're very close to some of these lines. But I'm also sober... and I have a process that is my own - ah the weaponry!
To be clear, I am not making a call that China or Gold won't make higher YTD highs. As our British philosophy Captain of the Revisionist League likes to say, I am "long of" both those asset classes "whilst" having very high conviction in them.
While everyone is getting jazzed up with our REFLATION call or the MEGA Consumer Squeeze call this morning, just take a deep breath, and take a good hard long look in that rear view mirror. These bullish calls aren't new.
All the while, remember that Roubini The Revisionist is now sitting beside you in the passenger seat - and he's not alone. This morning's weekly sentiment survey has Bulls shooting up to 41% (from the mid 20's in March) and Bears dropping like flies down to 28% (from the high 40's in March). Sentiment in this market is finally bullish enough for me to get out of the way on the long side. As I start to wander on over to the ole Bear camp again, I wonder if anyone is still left standing? The booze is definitely gone!
My immediate term upside target for the SP500 is 918, and I have downside support at 896. Trade the range.
Best of luck out there today,
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 closed-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.
XLU - SPDR Utilities - We shorted Utilities on 5/22 as it is trading below the TREND line. As long term bond yields breakout to the upside, Utility investments are the relative yield loser.
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.
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.
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.