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"The strength of a nation derives from the integrity of the home."
-Confucius
 
President Obama should take that quote and tape it to the back of his crackberry. America's currency is on the verge of a crisis, and now so is her Treasury market.
 
If you're in the "Jimmy Timmy" camp and think that Cramerica's solution to all that ails the integrity of the US Financial System runs through CNBC and Timmy Geithner, I'm sorry to hear that. Rasmussen's latest Main Street "Timmy" poll has over 70% of Americans thinking that the YouTubed Squirrel Hunter is removed from his seat as Secretary of the Treasury by the end of 2009. That's a bullish catalyst that can't come soon enough.
 
What's the point in having Secretaries of a Treasury market that they don't manage as a priority? Even tricky Dick Cheney went on national TV last night and finally admitted what we, who aren't willfully blind, have seen for the last year - Hank The Market Tank Paulson, like Timmy, serves Investment Banking Inc. bailouts first. So... Dear American underlings who aren't part of the Wall Street Club, take your currency and savings bonds and fall in line.
 
This is so pathetic and sad that I can only call it out for what it is. The New Reality isn't about being political, it's about the US Government being willfully blind and deaf. Obama's crackberry nation of reactive said leaders can hopefully get at least a feel for this if I keep hammering on it  - no need to see or hear boys, crackberries vibrate.
 
For those who haven't noticed, the US Treasury market has gone from shaking to crashing. Not unlike that US Dollar chart that I put up in a note yesterday to our Macro subscribers titled "The Chart That No One In Obamerica Is Allowed To Talk About...", the chart of 10-year US Treasury Bonds is equally as damning. If "the strength of a nation" really does "derive from the integrity of the home", don't look to the bonds associated with a long standing American handshake for shelter. The compromised and conflicted bankers of everything Robert Rubin groupthink are still running this joint.
 
Do I sound surly this morning? Yes, these days I'm in an average mood at best when my alarm goes off at 4:01AM. I was used to sleeping in until 4:03AM, until Geithner started making me allocate an extra 90 seconds of my research time every morning trying to follow his made-up rules to this game. Hockey players can change on the fly, but this guy's proposed rules, timelines, and selective disclosures for everything from his made-up tests to the PPIF (public private investment fund of funds or whatever he use to call it) can make a Sydney Crosby pass across the neutral zone look slow!
 
The New Reality remains. American supremacy as the world's safe haven for currency and fixed income investment is under assault. American Idol season of your local insider trader hedgie who is "smart" because he "makes money" are ending, abruptly. Madoff doesn't work. The world's financial markets have voted.
 
Yesterday I said that the US Equity market was setting up to lock in another lower high, and I gave you levels. All three of those levels (SP500 934, Nasdaq 1764, and Russell 511) were not breached, and right after the US Government issued another boat load of bonds at the 5-year auction, both the US bond and stock markets fell apart.
 
This morning, I'll give you 3 more levels on those same US indices, but this time these are levels I consider critical immediate-term TRADE support:
 
1.      SP500 = 885

2.      Nasdaq = 1702

3.      Russell 2000 = 485

 
My playbook from here is crystal clear. After selling down my invested exposures aggressively in the last few weeks, I am waiting to see the confirmation of US stock market support. If you believe that real-time market prices (across asset classes and geographies) are leading indicators like I do, you get the drill. Both the US currency and bond markets are already broken. Are they leading this Canadian hockey mule to water on US stocks or not? Only time will tell...
 
The US Dollar broke my long-term TREND line of support last week. Since literally the day that I rang the sirens on this critical global macro factor, the US stock market has been down in 5 of the last 6 days.
 
The US Dollar Index long-term TREND line of $81.54 is the one that has the hair standing up on my back - Washington ignoring the alarm bell just makes this worse. If Bush was willfully blind, Obama is apparently willfully deaf.
 
The strength of this nation depends on a red, white and blue vision that people can trust. President Obama, for the third time now in a public rant, I am going to ask you on behalf of the American people who are allowed to see, do you hear me now?
 
Best of luck out there today,
KM
 

LONG ETFS

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-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.
 

SHORT ETFS
 
XLU - SPDR Utilities - Utilities had an ugly day on 5/27, breaking down through the TRADE line; we remain short. 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.