The Slowest Man On Campus

“If you have an important point to make, don’t try to be subtle or clever… Use a pile driver. Hit the point once. Then come back and hit it again. Then hit it a third time – a tremendous whack.”
-Winston Churchill

For three long days did I ever feel that way. I kept investing my bloated cash position into what turned out to be the worst weekly stock market decline in forever. By the time I was able to focus on what had actually happened, I was 3 miles into a run on Saturday morning with my son in his high performance “Bob” stroller (the stroller runs me). By Friday’s close my portfolio asset allocation was 65% Cash, and 35% Equities, which is the most invested I have been in 6 months.

Getting invested last week certainly didn’t help my year to date performance. For the week, I lost -1.39%. The S&P 500 down -18.2%, Oil was down -17%, and Warren Buffett was down -17%, so it could have been worse. Reality is that for the levered long community, it was. I also prayed for them while I was on mile 4 of that morning run.

For those of you who don’t know, I am a very slow long distance runner. So slow in fact that Coach Taylor cancelled the “2 Mile Run” during my senior year with the Yale hockey team, because he didn’t want me to get embarrassed by the freshman! I think I was the slowest man on campus. Little did I know back then that slow and steady wins the investment race. I expect “Patience” to overtake “Event Driven” as the fund of fund community’s favorite stylistic investment allocation in 2009.

The Europeans have shown some patience relative to our reactive management style, and they are leading global markets higher this morning. While USA’s ‘Investment Banking Inc.’ would like to think that it’s due to their latest weekend scheming, the reality is that it’s because we didn’t have to watch them on TV all weekend long for once. ECB Chief, Jean Claude Trichet, looks to be trying to take over as the world’s leading central banker this morning. European stocks are responding with a +5-7% move across the board. I, for one, feel better about who is managing this mess today. Finally, the world is giving us a hand.

In Asian trading, it looks like we got lucky buying China and Hong Kong. We are long both the EWH and FXI etfs in our ‘Hedgeye Portfolio’. The Hang Sang Index closed up a huge +10.2%, leading most Asian equity markets out of the dark black hole of hopelessness that we were staring down into on Thursday night. China closed up +3.7% after reporting a stellar export growth number for the month of September of +21.5% year over year. That’s an acceleration from August, and it shouldn’t surprise you given that the Olympics have passed. Now the Chinese are getting back down to business.

In conjunction with their positive economic report, China reported tacking on another $29B of trade surplus. Don’t forget that amidst the world coming to realize that cash is king, the Chinese have the most of it… $1.8 Trillion in reserves to be precise. The politicized and compromised US Federal Reserve better remember who buys all of our “Heli-Ben” free money bonds. If the Chinese stop buying them, the next asset bubble to burst will be the loudest - US Treasuries.

“Ah, c’mon Keith – pick up the pace back there… that will never happen.” Really? Why not? Ask the Japanese how vibrant foreign investment became in their domestic economy in the 1990’s when they cut interest rates to zero. This isn’t rocket science folks; if you don’t give a bond holder a real rate of return, he/she will be selling those bonds and buying someone else’s.

Some of the “Fast Money” folks won’t see this Chinese investment “Trend” turn, if it ever does. They are too busy running from their own shadows right now. Don’t forget, these guys are really “Fast”… so fast, that sometimes they forget to tie up their shoes before they get in this race. Remember how fired up these fast guys used to get when China Investment Corp bought $5B worth of Morgan Stanley, or was it $3B worth of Blackstone? These guys are still sprinting with crack berry in hand, so they probably missed the sign with the math on it that says -70% - that’s about what those “sovereign investments” have lost on those “deals”…

A career in money management is a marathon, not a sprint. The art of managing other people’s money is having money to manage. Be patient. My upside squeeze target for the S&P 500 is 1,042, +16% higher from Friday’s close.

Best of luck out there this week,
KM



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