“… self assured, guided by his own ferocious determination.”
-Doris Kearns Goodwin
No matter what your views are on how this epic market move ends, you have to find it within yourself to find a way to win. This has nothing to do with what you’d like your former free-markets to be; it has everything to do with risk managing what they have become.
The aforementioned quote is one that defined President Teddy Roosevelt’s character at a very young age. “Teedie (his nickname) held a distinct place among his siblings; the asthma that had weakened his body seemed to have inordinately sharpened his mind and sensibilities… he was always reading or writing with a most unusual power of concentration.” (The Bully Pulpit, pg 37)
So, in the spirit of what America’s “Strenuous Life” used to stand for, sharpen your mind this morning. Challenge yourself to learn. Evolve your investment process. And, above all else, tone down your emotional market response to whatever you may or may not have missed.
Back to the Global Macro Grind…
Are you ferociously determined to beat beta? I am. And I’m not going to apologize for that. Why else would you wake up to play this game every morning unless you wanted to win?
After 382 points of price appreciation, the SP500 clocked yet another all-time closing high yesterday of 1808. That’s a +26.8% gain for 2013 YTD. And once again, it came on a no-taper (in December) market expectation day.
Whether you or I think the Fed should have tapered in September doesn’t actually matter at this stage of the game. Been there, argued about that. What matters is what decisions you make next.
Risk is always changing. Up until September 18th, Mr. Macro Market scored growth as the most relevant stock market risk (to the upside). Sure, some people were bullish – but consensus wasn’t positioned bullish. Here’s what worked from JAN-SEP:
- #RatesRising (Gold and Bonds weren’t working)
- #GrowthAccelerating (as an Equity Style Factor)
Then, post the Fed’s unaccountable decision not to taper (as Q313 US Growth was tracking +3.6%), from mid-SEP to mid-OCT:
- Down Dollar
- Rates Falling
- #GrowthSlowing outperformed growth
Then, in November, growth as an Equity Style Factor started to recover again:
- Rates Rose
- Gold fell
- But the US Dollar remained no bid (in spite of an ECB rate cut!)
Now, look at what we have – the return of our old un-elected friend: @FederalReserve’s Policy To Inflate:
- Down Dollar (for 5 straight weeks)
- CRB Commodities Index inflation (and Gold) arrested their YTD lows
- Oil prices and inflation oriented equities inflating again
Instead of debating this, look at the trivial matter that is Correlation Risk between the US Dollar and everything else (using a 6 week duration – these are inverse correlations; i.e. Down Dollar = Up X):
- SP500 vs USD = -0.63
- Brent Oil vs USD = -0.66
- CRB Commodities Index vs USD = -0.73
- Nasdaq vs USD = -0.79
- Natural Gas = -0.85
For whom? The small percentage of us in America who understands it? Or to those who are the recipient of inflated prices at the pump and accelerating costs to heat their homes during today’s CT snowstorm?
Yes We Can, baby. We can re-flate Bernanke’s Bubble in commodity prices. Why not? Who cares if it slows everything that we haven’t had during this entire monetary policy experiment (sustained real-consumption growth). It’s time to buy some coal!
To be clear, this will end in tears. But, in the meantime, I will trade this market’s all-time highs with ferocious determination. Yes, that means that on pullbacks I will buy-the-damn-bubble #BTDB. Then I’ll sell on green too. Keep moving out there; risk does.
Our immediate-term Risk Ranges are now:
10yr UST Yield 2.80-2.91%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer