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"Doing what you like is freedom. Liking what you do is happiness."

-Frank Tyger 

Sometimes I wake up in the morning to bullish market factors. Sometimes they are bearish. All of the time, I want to consider those risk factors and make a call on markets. Taking a stand and being accountable to my team and our clients is what makes me happy.

Sometimes people think my going after people like Larry Kudlow is mean. Sometimes they love it. All of the time, I consider protecting your money a full contact sport. I want to find a player on this proverbial market ice that we can beat. Getting out there and competing every day is what makes me happy.

Sometimes money makes people happy. Sometimes it doesn’t. Some people are never happy. Having been fortunate enough to have made enough money to not have to worry about it anymore, I can tell you this - genuinely liking what you do is happiness.

People say you can’t time markets. So I am on a mission to prove that you can call the probabilities of risk in markets every day. History will judge me not by the perceived wisdoms and be nice policies of this business, but by the score. I like history. It doesn’t lie.

Yesterday’s risk management call was to not chase the higher-highs being trumpeted by the perpetually bullish. Today’s call will be to buy longs and cover your shorts on weakness. Tomorrow’s call will become clear to me tomorrow.

In the US stock market, here are some important lines of immediate term support and resistance to manage risk around:

  1. SP500 support 1115; resistance 1136
  2. Nasdaq support 2247; resistance 2323
  3. Russell 2000 support 622- resistance 644

In global equity markets, here are some important moves that we have seen change the game in the last 24 hours:

  1. China’s Shanghai Composite Index has shot back up, above its immediate term TRADE line of 3216, closing up +1.6% overnight
  2. HK’s Hang Seng continues to underperform, closing down again last night, and remains broken from an intermediate term TREND perspective
  3. Japanese stocks lost -0.86% last night on legitimate bankruptcy concerns surrounding Japan Airlines
  4. European Sovereign Debt issues continue to shake select European country indices: today Greece is -0.6%; Austria -0.7%; Spain -0.6%
  5. Russian stocks are down for the second day in a row, trading down more than -1%, and breaking their immediate term TRADE Line
  6. Brazilian stocks were up for the second day in a row, breaking out above my immediate term TRADE line on the Bovespa of 67,735

In global commodity trading, here’s what’s new:

  1. Oil has taken geopolitical risk associated with terrorism quite seriously and has broken out above its immediate term TRADE line of $75.37/barrel
  2. Gold is a broken TRADE (that line of resistance = $1147/oz), but continues to look like a long at the right price ($1071/oz is the intermediate TREND line)
  3. Copper is breaking out to higher-highs this morning at $3.33/lb

So what does all of this mean? Well for me at least, it means that today is going to be a good one. We’re long Brazil (EWZ). We’re short Russia (RSX). We’re are carrying a 68% position in cash in the Asset Allocation Model and we’re ready to go shopping for some post Christmas sales.

Why is it that Kudlow and Company only like to buy things on the way up? I have no idea. Maybe there was something in the snow I chewed on growing up in Thunder Bay that makes me this way. Maybe I’m just normal and don’t like to pay up for anything (or eat yellow snow). Who knows…

What I do know, is that the summary of all of the aforementioned global macro risk factors in my model are leading to one thing – an earlier than expected rate hike from the US Federal Reserve.


He Who Sees No Bubbles (Bernanke) is getting a Northern Ontario style face wash in the snow-bank by the bond market. The short end of the Treasury market is getting buried, as 2-year yields are breaking out to the upside, across all 3 of my key durations (TRADE, TREND, and TAIL), acknowledging the bullish intermediate term TRENDS in everything from the price of Copper to American, Chinese, Brazilian stocks, and global bond yields.

Bernanke has been completely politicized, but marked-to-market prices, are doing what they like. That’s called freedom. And I, for one, feel blessed to live in this country under the watch of America’s bravest, having mine. God bless Freedom of Speech.

Best of luck out there today,

KM

LONG ETFS

VXX - iPath S&P500 VolatilityFor a TRADE we bought some protection at the market's YTD highs by buying volatility on 12/14.

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.

GLD - SPDR GoldWe 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 YuanThe 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 TIPSThe 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
 
RSX – Market Vectors Russia
We shorted Russia on 12/18 after a terrible unemployment report and an intermediate term TREND view of oil’s price that’s bearish.  

 

EWJ - iShares JapanWhile 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 IndustrialsWe 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 DiscretionaryWe shorted Howard Penney's view on Consumer Discretionary stocks on 10/30 and 12/2.

SHY - iShares 1-3 Year Treasury BondsIf 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.