• Navigate This Market Turbulence: All Hedgeye Research → 3 Months 66% Off

    Preserve. Protect. Grow. Former hedge fund manager and CEO Keith McCullough has successfully navigated the Dot Com Bust, Great Financial Crisis and Crash of 2020. Get 66% off the smartest investing insights money can buy.

"In life, as in a football game, the principle is to hit the line hard.”
-Theodore Roosevelt
If you want to make it in this business, have your own process and patiently prepare. When you see a high probability opportunity to win - hit the line hard. Otherwise, just buy an index fund and/or ask you friends for their “best ideas.”
If you want to approach this game hitting the line hard on every market move (trust me, in the last decade of my making mistakes trading markets with live ammo I’ve tried it), you’re going to have a short shelf life. The investment season is long and hard. Pick your spots. Timing and sizing is everything when it comes to winning.
With the SP500 trading lower in 4 out of the last 5 sessions, and the media carting out everyone from David Tice (on Bloomberg), Nouriel Roubini (on CNBC), to some head and shoulders double top technician, I see a big opportunity.
Two days ago I posted an intraday note titled “Buying Red”, and yesterday I posted another one titled “Game Time.” When your investment process leads you to high probabilities of economic reward, it’s not time to take a show of hands – it’s time to do up your chinstrap and make the call.
My call is this – take advantage of the generational level of groupthink that you are seeing out there and buy low. Until the US market’s intermediate term TREND of Dollar down = everything priced in Dollars up breaks down, don’t fight it – capitalize on it.
A lot of levered long investors called themselves “event driven” funds at the manic highs of 2007. In many cases, unlike tangible merger arb events, these “events” were soft catalyst in nature (like say buying shares of something wild Bill Ackman was about to file an Ackmanist position in). That greater lemming strategy obviously doesn’t work when the market is going down. But what about macro “events” that you can have Research Edge on in a market that’s going up?
You see, the problem a lot of these levered long super duper stock picking dudes have with macro is that a company’s CFO can’t get them comfortable with macro catalysts. There is no super special “one on one” that a portfolio manager can sign up for to get that Global Macro memo. Macro matters, and so do the macro events.
My global macro “event” is Ben Bernanke’s FOMC statement.
Game Time: today - 2:15PM EST.
If Bernanke panders to the political pressures of maintaining this ridiculous rhetoric of “Depressions” and “emergency level” interest rates, the US Dollar will put in another lower-high, and start to retrace it’s year-to-date lows. If he doesn’t pander, he still might confuse the currency market and I win that way too. I think he panders.
On our 1PM EST Macro Monthly Strategy call today, I’ll go over one of my Q3 Macro Themes, “Burning The Buck”. Since March, if you’ve only bought stocks/commodities/currencies, etc. on US Dollar up moves, you have been absolutely crushing it in your 2009 season.
Again, the US stock market has been down 4 out of the last 5 trading days. Over that time period, the US Dollar has rallied +2.5%. The US Dollar remains broken across all 3 of my key investment durations (TRADE, TREND, and TAIL). Stocks, commodities, and currencies remain bullish across all 3 durations.
That’s why I am choosing to hit this line hard. In the Virtual Portfolio, I have 28 longs and 6 shorts. In the Asset Allocation Model, I have taken my position in US Cash down to 32%. Until I don’t see these buying opportunities for what they are, I will keep taking these shots.
That’s all I have for you this morning. It’s Game Time.
Best of luck to you out there on the field today,


XLK – SPDR Technology Tech and Healthcare remain the two sectors most primed for accelerating M&A activity in Q4. Both look great from an intermediate term TREND perspective, but at a price.

EWC – iShares Canada We bought Canada on 8/11 ahead of Bernanke’s pandering. Canada has what THE client (China) needs, namely commodities, which we believe will reflate as the buck burns.   

USO – Oil FundWe bought USO on 8/10. With Bernanke as the catalyst for the USD breaking down we want to be long oil.

QQQQ – PowerShares NASDAQ 100 We bought Qs on 8/10 to be long the US market. The index includes companies with better balance sheets that don’t need as much financial leverage.

COW – iPath Livestock This ETN tracks an index comprised of two thirds Live Cattle futures, one third Lean Hogs futures. We initially began looking at these commodities because of recession inspired capacity reductions combined with seasonal inflections. A series of macro factors including the swine flu scare, a major dairy cattle cull in response to collapsing milk prices and the collapse of the Argentine agricultural complex due to misguided policy provided us with additional supporting fundamental data points for the quantitative set up in price action.  

EWG – iShares Germany Chancellor Merkel has shown leadership in the economic downturn, from a measured stimulus package and budget balance to timely incentives such as the auto rebate program. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; factory orders and production as well as business and consumer confidence have seen a steady rise over the last months, while internal demand appears to be improving with the low CPI/interest rate environment bolstering consumer spending. We expect slow but steady economic improvement for Europe’s largest economy.

XLV– SPDR Healthcare Healthcare has lagged the market as investors chase beta.  With consumer confidence down and the reform dialogue turning negative we like the re-entry point here.

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.

CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global 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 - Buying back the GLD that we sold higher earlier in June on 6/30. In an equity market that is losing its bullish momentum, we expect the masses to rotate back to Gold.  We also think the glittery metal will benefit in the intermediate term as inflation concerns accelerate into Q4.

UUP – U.S. Dollar IndexShorting the USD on a strong 3-day rally to another lower high. Your catalyst is Bernanke pandering to political consensus on Wednesday. We believe that the US Dollar is a 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 US dollar.

DIA  – Diamonds Trust- We shorted the financial geared Dow on 7/10 and 8/3.

EWJ – iShares Japan –We’re short 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.

SHY – iShares 1-3 Year Treasury Bonds – If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.