The Truth

Look at the means which a man employs, consider his motives, observe his pleasures. A man simply cannot conceal himself!
-Confucius

Its global this time, indeed. It’s ‘Macro Time’ out there too, so let’s get at it and take some proactive measures of leadership this morning. AIG collapsing last night reminds us all that you are only as safe as the quality of your management. Leadership and cash remain kings.

Not all cash is king. Asian or Eastern European cash is actually frightening right here and now. Alongside a terrorist attack overnight on the US Embassy in Yemen, we have an attack on King Dollar too. The unthinkable has been revealed – the oldest money market fund in America, the “Reserve Primary Fund” was levered long Lehman Debt! Welcome to the new rules of ‘You Tubing’ the US Financial system. After revealing the truth, the “Reserve” fund saw 60% of its assets liquidated. Who is managing your cash? JP Morgan and my mattress have mine.

Transparency, Accountability, and Trust – simple concepts, yet so difficult for the greed mongers out there to uphold. The aforementioned Confucius quote is classic and it’s ringing in the ears of American living rooms all of a sudden. I have looked into the whites of the eyes of plenty of Wall Street’s said leaders. Some are the highest integrity people I have ever met, but then there are the others – give a person a lot of money, and their true character is revealed.

Back to the global economy, Japan and Russia are giving out dump truck loads of cash in trying to stabilize their markets right now. I’m ok with the Nikkei rallying +1.2% overnight, primarily because we covered our Japan (EWJ ) short yesterday, and now I can re-short it higher. The facts remain the same in Japan – they run a government sponsored bailout program at every hint of economic duress, and continue to suffer a generational malaise of economic stagnation as a result. The Bank of Japan kept rates at a free money rate last night of 0.50% - that’s no surprise. What is a surprise is the expediency by which they are injecting Yen into their economy. After plowing another 1 Trillion Yen into its domestic money market last night, my scorecard has it at 4 massive cash injections in the last 2 days!

Russia is doing the same, and to zero avail. They are in the midst of halting the Russian stock market’s trading right here and now as the Russian Trading System Index is down another -6.4% this morning at 1058. Since our “Fading Fast Money” call on 5/19, the former KGB leadership has lost -57% of their country's stock market value. Since the beginning of September alone the RTSI is down -36%!! Between China trading down another -2.9% last night, taking its cumulative losses close to -70% since October, and the implosion in Brazilian and Indian equity markets, you don’t need Larry Kudlow to define whether or not these are called “crashes”. Remember, the bullish narrative of the acronym “BRIC”? I do. This global economic crisis looks more like a brick to the forehead.

Lehman, AIG and Linen’s & Things going under is all about the same thing, a complex system of interconnect global market factors that are colliding with one another. While CNBC is focused on AIG this morning, the governing coalition in the Ukraine is collapsing. The Ukrainian stock market was down -14% yesterday! It’s down -71% since January, and no one is talking about it! We hockey players have never been accused of being an overly intelligent bunch, but I for one can read a map. The economic contagion associated with the Russian fallout in Georgia is real.

I know, I know. Wall Street billionaire’s are the “smart” money. Who am I to call these said “leaders” onto the mat? Well, the good news is that more people are behind my proactive plan with each passing day. Confucius was intelligent, so take it from him rather than me - the lack of foresight, judgment, and leadership in our financial system can no longer be “concealed”.

I bought and covered 8 positions in the ‘Hedgeye Portfolio’ yesterday at the level that I issued in yesterday’s note (1172-1196 in the S&P500). I moved to 82% cash, down from 84%. I have a proactive risk management plan that I am happy to share with 100% transparency, and I execute against it. That’s it.

Keep it simple stupid is what you can say to me, and I am cool with that. Don’t forget to keep a “Trade” a trade however, all the while. Name calling is cool too – this is a full contact sport, and I can take a punch. Two hours until US market open game time. Let’s get at it.

KM



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