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“I never met anybody who said when they were a kid, ‘I wanna grow up and be a critic’”
-Richard Pryor
I don’t like to be negative or judgmental. I’m not perfect.  I make mistakes too.  We all do!  Keith is known to hurl a few diatribes in his Early Look every once in a while - sometimes it’s funny and sometimes it just seems mean.  So what!  
It’s a cruel world out there and in this business you need to be critical to survive, stand up for what you believe and be factually correct!  Most importantly, people want you to “make a call.”  That is what we do every day!
I agree with Keith that Ben Bernanke is completely compromised and Tim “Timmy” Geithner is out of his league and should never have been appointed in the first place.  At the same time they are the two people in Washington that have “inside information.”  
During this past week Ben had already said the US economy faces “formidable headwinds“ and then yesterday, we learned that the Treasury Secretary notified Congress that he is extending the Troubled Asset Relief Program through October 3, 2010.  Why?  What do they know that I don’t? A lot, because they have “inside information!”
I don’t have inside information, but I have the RE Macro Models and this is what I do know…..
(1)   The US Dollar is establishing itself a new level of support with the TREND line at 76.41 – The BUCK is BOTTOMING and is still a SAFE HAVEN.
(2)   The Semis are rallying – The SOX is up 11 of the past 12 days – Talk to Rebecca Runkle about this one!
(3)   OIL is falling – It’s currently trading at a 2-month low – The reality of supply and demand!
(4)   Gold has fallen just over $100 (9%) in a week – Just a bubble?
(5)   Copper has fallen for six straight days (the longest losing streak in a year) – The reality of supply and demand!
(6)   Financials have underperformed the S&P 500 by 660 basis points over the past three months – This could be trouble!
Seeing the Financials dramatically underperform is unnerving and could be a leading indicator of things to come.  Whether or not Ben and Tim know something that I don’t about the health of our financial system, Mr. Market is trying to tell us something.  The Banks are not lending and the FDIC continues to close more doors, while the “son of sub-prime” is going to hit with another wave of defaults in 2010. Ben can’t raise rates and the Treasury Secretary is going to need TARP in 2010!    We are in a very bad situation.  
Have the Financials truly absorbed all of the asset deflation in the system and are the current capital ratios real?   
To help guide us through this mess, we have recently announced that Josh Steiner has joined Research Edge as head of the Financials Team.  Josh and Keith will be hosting a financials conference call tomorrow at 11am.  If you are interested in listening, please contact us at .
As for me, I believe Technology, Utilities and Healthcare are part of the new SAFETY trade.  Utilities have yield and growth - a stealth play on Green technology.  Healthcare is safe from the perils of Washington (that is NOT Tom Tobin’s official Research Edge Healthcare call) and selected Technology names are beneficiaries of deflation.  
The daily missives from Keith and the Research Edge team are here to stay.  Any guesses on which group thinker we will take on next?
Finish in Style; function in disaster
Howard Penney
Managing Director

EWZ – iShares BrazilAs Greece and Dubai were blowing up, we took our Asset Allocation on International Equities to zero.  On 12/8 we started buying back exposure via our favorite country, Brazil, with the etf trading down on the day. We remain bullish on Brazil’s commodity complex and believe the country’s management of its interest rate policy has promoted stimulus.

XLK – SPDR Technology We bought back our position in Tech on 11/20. Rebecca Runkle has an innovation story in Mobility and Team Macro has an M&A story in our Q4 Theme, the “Banker Bonanza”. We’re bullish on XLK on TREND (3 Months or more).

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.

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.

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.   

XLY – SPDR Consumer Discretionary We shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30 and 12/2.

– 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.