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“If you don’t know who the sucker is, it’s you.”


Searching through QuoteInvestigator.com this morning (nice life at 5AM), I couldn’t figure out who actually made this common sense statement first. If you know, let me know!

In one of Berkshire’s Annual Reports, Warren Buffett wrote: “As they say in poker, if you’ve been in the game 30 minutes and don’t know who the patsy is, you’re the patsy.”


I don’t like the word patsy, and I don’t want to be the sucker. What I really want is good #process. As Lasse Heje Pedersen wrote in Efficiently Inefficient, “we are interested in strategies that can be expected to continue to make money in the future – a repeatable process that generates alpha.” (pg 39)

SPY Suckers - trust my gut cartoon 10.14.2015  2

Back to the Global Macro Grind…  

Don’t be the guy/gal who woke up this morning with the “15 Stocks To Buy Now” (cover of Barron’s this weekend). Instead of how to “position for a rebound” (Barron’s), non-suckers will continue to be positioned for what’s been working for 7 months – selling into the mother of all-time highs in US stocks, and ramping up defensive Long-term Treasury type (TLT) exposures.

Last week was a fun one, if only because they found “rebalance” as a reason to mark-up the US stock market into month end after a ridiculous move by the Japanese to target “negative yields” in their bond market. After closing +2.5% on the day on Friday (to get the SP500 +1.7% on the week), most macro pundits were able to forget that US GDP had a 0% handle on it (0.7% for Q4).

If you dig into the internals of the macro market moves (we’re non-sucker sticklers for breaking down the storytelling of it all) here’s how the weekly scores looked relative to 2016 to-date:

  1. US Dollar Index flat for the week and +1.0% YTD
  2. Burning Yen (vs. USD) -1.9% for the week and -0.7% YTD
  3. Nikkei (Japan) +3.3% for the week and -8.0% YTD
  4. Russell 2000 +1.4% for the week and -8.8% YTD
  5. Nasdaq only +0.5% on for the week and -7.9% YTD
  6. Healthcare Stocks (XLV) down -2.0% for the week and -7.7% YTD

I’ll stop there for a second as it’s critical to contextualize that the “QE hope” was all that was – a day trade. Many US “growth” investors aren’t long Japanese stocks or Commodity squeezes – they’re long Nasdaq and Healthcare beta.

If you break down the US Equity Style Factors week-over-week:

  1. High Short Interest Stocks were +2.8% for the week and are -6.0% YTD
  2. Low-Growth Stocks were +3.1% for the week and are -5.1% YTD

*Mean Performance of Top Quartile vs. Bottom Quartile of SP500 Companies

In other words, not only did Energy Stocks (XLE) +4.4% lead the low-quality-short-squeeze on Friday, but the Top Quartile of SP500 Sales Growers sucked, closing only +0.7% on the week and only -7.5% YTD.

If you can’t be long the “growth” that everyone is already long, what was up last week that is A) actually up YTD and B) generating non-sucker alpha for the right reasons?

  1. Utilities (XLU) had another monster week, closing +3.7% to 4.9% YTD
  2. The Long Bond (TLT) capitalized on another -13 basis point drop in the 10yr Yield to get to +5.3% YTD
  3. Gold tacked on another +1.8% for the week, moving to +5.3% YTD

While US Dollar (UUP), The Long Bond (TLT), and Utilities (XLU) remain the Top 3 LONG Ideas in our Global Macro Themes Deck, I added Gold (GLD) to the long side (when it was red on the day) in Real-Time Alerts late last week.

On the other side of those Long Ideas, there’s a bounty of excellent short selling opportunities this morning in things like:

  1. Oil
  2. Copper
  3. CAT
  4. Canadian (and US) Banks
  5. SPY (SP500)

Oh yeah. You like that last one don’t you! SPY has been the sucker’s rally position for the aforementioned 7 months (when it locked in its all-time #Bubble high of 2130 in July of 2015).

Admittedly, being short SPY hasn’t been as sexy as short something like the Italian Stock Market (MIB Index DOWN another -2.0% last week to -12.9% YTD with #EuropeSlowing from its cycle peak), but it’s been pretty sexy.

From a sentiment perspective, looking at the CFTC non-commercial net SHORT position in the SP500 (Index + Emini):

  1. It got 54,976 LESS short last week to -137,478 net SHORT contracts
  2. That’s 50% less short than the peak short position established in SEP 2015 (at the market low)
  3. And that position registers a -0.5 z-score vs. its 1yr avg (the 6mth avg net SHORT position = -148, 831)

So, for starters, I’m thinking that the SP500 (SPY) has at least another 200 handles of intermediate-term TREND downside (another -10% from Friday’s marked-up close) before I take a knee again. Consensus on a US #Recession isn’t nearly Bearish Enough.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.91-2.02%

SPX 1 
YEN 119.01-121.54 
Oil (WTI) 27.52-34.66

Gold 1100-1132

Best of luck out there this week,


Keith R. McCullough
Chief Executive Officer

SPY Suckers - 02.01.16 Chart