Powered By Pride

“I will never quit. I persevere and thrive on adversity. My Nation expects me to be physically harder and mentally stronger than my enemies. If knocked down, I will get back up, every time. I will draw on every remaining ounce of strength to protect my teammates and accomplish our mission. I am never out of the fight.”
-US Navy SEALs
 
That quote was cited by Marcus Luttrell - Team Leader, SDV Team 1, Alfa Platoon - as the central paragraph of the philosophy of the US Navy SEALs. I am Canadian. My son is American. That’s the kind of American Leadership we can believe in.
 
In 2007, Luttrell wrote an eye witness account of his SEAL Team’s deadly fight in Afghanistan. It was titled Lone Survivor. The true story remains the most impactful military book I have read this year. It’s All American in a way that the US Financial System used to be – powered by pride and accountability.
 
Today is Veteran’s Day. On behalf of everyone on my team, I would like to thank the bravest men and women of America for providing us the opportunity to wake-up and do what we do every day.
 
Yesterday marked another day of lower-highs for the US stock market. Closing flat on the day at 1093, the SP500 is only -0.4% off of the closing-high established on October 19th, and a full +61.7% higher than where a lot of market strategists called this entire system “out of the fight.”
 
America always finds a way to fight back. This time, we took a page out of FDR’s playbook and we fanned the fires of deflation by devaluing our currency. To a point, Breaking the Buck (we called for Obama to do that on February 24th) was something everyone on the American team could tolerate, to protect their teammates.
 
Then, predictably, some Washington and Wall Street individuals got greedy. Instead of Breaking it, they started Burning it. The Bankers, Debtors, and Politicians got paid. The American Savers and Consumers got the bill.
 
What does your Nation expect of you? What do you expect of your Nation?
 
My greatest fear in American finance today is that memories on Wall Street are as short as their last text message. There was a lot of economic sacrifice in this country, by a lot of people. The 119,000 employees of JP Morgan, Morgan Stanley, and Goldman didn’t get us out of this financial mess. The American team did. Sadly, only a select few deem themselves worthy of the reward.
 
If you show me 30 Billion reasons why The Big 3 Bankers in this country deserve $30B in bonuses in 2009, I’ll show you the cowardice that only a Taliban terrorist dressed as a goat herder can rival in Afghanistan. There is no pride in watching you people behave like this. It’s un-American.
 
The only way out is for American financiers to start behaving like patriots again. It’s time to “draw on every remaining ounce of strength to protect” our teammates , “and accomplish our mission.” It’s time to look this American Credibility Crisis in the eye, raise interest rates and strengthen our currency. Capitalizing the balance sheets of a select few and kicking a socialized can of losses down the road to our neighbor’s children is gutless resolve.
 
On the heels of America’s Squirrel Hunter (Geithner) saying the following in Tokyo today, the Buck is Burning down to another YTD low at $74.85:

“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar”

Enough of what you believe “deeply” already. No one believes you, dude. Your voice is being laughed at by the Chinese. The world is using your conflicted compromise to engage in carry trading with our hard earned American currency. Your voice is a metaphor for the Lone Survivor in American Leadership lost.
 
It’s time to find that American voice again. It’s time to power the US Financial System with pride and accountability again. Let’s get on with it.
 
“I’m a sniper, and I’m the platoon medic. But most of all, I’m an American.”
-Marcus Luttrell
 
My immediate term TRADE lines for the SP500 are now 1070 (support) and 1101 (resistance).
 
Best of luck out there today,
KM

LONG ETFS
       
EWT – iShares Taiwan
With the introduction of “Panda Diplomacy” Taiwan has found itself growing closer to mainland China. Although the politics remain awkward, the business opportunities are massive and the private sector, now almost fully emerged from state dominance, has rushed to both service “the client” and to make capital investments there.  With an export industry base heavily weighted towards technology and communications equipment, Taiwanese companies are in the right place at the right time to catch the wave of increased consumer spending spurred by Beijing’s massive stimulus package.

XLU – SPDR Utilities We bought low beta Utilities on discount on 10/20. TRADE and TREND bullish.

GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

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. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

 
SHORT ETFS
 
EWY – iShares South Korea South Korea has joined Japan in the ominous position of broken TREND and TRADE. This is not China or Taiwan. This is an early cycle economy that we want to be short against China/Taiwan.

XLI – SPDR Industrials We shorted Industrials again on 11/9 on the up move as the US market made a lower-high.  This is the best way for us to be short the hope of a V-shaped recovery.   

EWU – iShares UK Despite areas of improvement, broader fundamentals remain shaky in the UK: government debt continues to expand, leadership in critical positions lacks, and the country’s leverage to the banking sector remains glaringly negative.  Q3 saw its GDP contract by -0.4%. Further bank stimulus and the BOE’s increase in its bond purchasing program suggest that this will not end well.

XLY – SPDR Consumer Discretionary We shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30. TRADE and TREND bullish.  

EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. 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.

FXB – CurrencyShares British Pound Sterling The Pound is the only major currency that looks remotely as precarious as the US Dollar. We shorted the Pound into strength on 10/16.

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.