Cash Only

The Definition of Insanity: “Doing the same thing over and over again, and expecting different results”
-Albert Einstein

“The Question” is, who is that quote more appropriate for this morning, the buy side, sell side, US government, or financial network media? From the hallowed halls of the hedge fund community to some of the squirreliest of squirrel hunting market pundits with an internet connection, I have seen my fair share of emails over the course of the last 9 months, suggesting that I was the one losing my mind out there. I guess that’s what makes a market.

At the counter of Dunkin’ Donuts in New Haven this morning, there is a sign that reads “Cash Only!”, and that’s about as appropriate a summary of this morning’s note that I can come up with. I issued an exposure update on the portal yesterday outlining my portfolio positioning: 96% Cash, 3% Gold, 1% Stocks. That didn’t change into the market’s close. That position made money in the largest US stock market crash day since 1987, and since that cash position pays month end interest today, it will again by the time the game clock runs out at 4PM EST. US Dollar denominated cash remains king.

Proactively preparing for risk is what we do, and whether or not my team gets credit for stepping up and taking the shot that few had the platform or conviction to take, at a bare minimum, my son Jack will be able to tell his buddies one day that his Dad protected and preserved his family’s capital on September 29, 2008. The best things in life are worth a lot more than money. A healthy family and home head up my list.

So what next? Let’s take a walk down the risk management path and keep doing what we do, proactively preparing for potential outcomes, rather than reacting to them. In the US, with the “evil doer” short sellers out of the market, market players still blew through my downside S&P target yesterday. As a result my levels of downside support are now as follows: S&P 500 (SPX) 1,074, Nasdaq (COMP) 1,931, and Russell 2000 (RUT) 627.

Volume and volatility shot straight up yesterday, so if you are freaking out with a VIX level of 47, you are giving in like most did in 1987 - at precisely the wrong time. Proactively prepare. Stay focused. Don’t do the same thing over and over again, and expect different results. Flexible and objective minds will prevail as the proverbial tarp of negative energy lingers overhead. Get yourself into a position of confidence and strength. Now it’s time to play offense. Take your competition right out of the game.

Asian trading closed pseudo constructively. Don’t forget that Asian stock markets have, in some cases, lost 1/2 to 2/3 of their value since the “it’s global this time” Investment Banking Inc. peak. The US market has only dropped -29% since October 10th, 2007, and organic growth prospects here are considerably darker than in countries whose per cap GDP is under $1,500/person.

Japan hit a three year low last night, closing down another -4.1%, and I’ll be locking in that gain on the short side sometime today, prices pending. Hong Kong rallied into the close and finished up on the day. With China closed, this was a positive divergence that the global equity market needed to see. We’re looking to get invested again and we’re revisiting China as a potential opportunity on the long side. The Chinese stock market has lost almost 70% of its value in less than a year, and they moved to the capitalist side of the global market share ledger last week by both cutting interest rates and allowing short selling. Additionally, China’s primary input cost, commodities, had their biggest down day yesterday since 1956.

Back to the US, the short sellers come back to the market on Friday as the short selling ban is lifted. That reality, alongside the US unemployment report and post quarter end hedge fund redemptions, provided the basis for the “Beware October 3rd, 2008” (www.researchedgellc.com, 9/19/08) note I went out with. The S&P 500 has dropped -12% since the market closed that day. For the 1st time this year, I am hoping that my call for an October Friday crash was 3 days too late.

Good luck out there today,
KM



Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more