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“To go beyond is as wrong as to fall short.”



When I think about making macro calls on 2010, I think about yesterday’s prices. Then I think about this morning’s. Then I think about our intermediate term macro themes. Then I think again. All the while, I think my hockey head had too many undiagnosed concussions.

I keep it simple. Real-time prices are the driving factor in our global macro risk management model. Prices don’t lie. They are leading indicators, telling us where we need to be asking research questions. Without asking the right questions, we usually don’t get the right answers.

When I was on the buy side, the biggest problem I had with Wall Street strategist “calls” on the new year wasn’t so much that they reverted to a mean, but that they all had the exact same duration. From a risk management perspective, it makes no sense to be boxed into a 12-month view.

As is customary with our quarterly Global Macro Theme calls, my team will hold a conference call for clients in the coming weeks to expand upon our 2010 calls. To be clear, these calls are for the 1st quarter of 2010. For now, to go beyond that “is as wrong as to fall short.”

Today we are going to initiate the following three Global Macro Themes for Q1 of 2010 (I’ll also go through these on Bloomberg TV this morning if you’d like to see my smiling fake hockey teeth):

1.      Buck Breakout

2.      Rate Run-up

3.      Chinese Ox In a Box

The first theme is self explanatory. From the authors of Breaking The Buck (Q1 of 2009), we think the buck is primed to breakout to the upside. As a result, in Q1, we also think that Gold is going to struggle.

The second theme is born out the Fed acknowledging that they have plain eyesight. As the data rolls in, a “data dependent” Ben Bernanke is going to watch interest rates continue to run-up. He is way behind the yield curve and now he’s going to be forced to chase it by preemptively raising rates. Both inflation and growth data are going to continue to be higher than Wall Street consensus throughout Q1 of 2010.

The third theme is nowhere in the area code of consensus. We have been writing about this for the better part of December, so our view is probably no surprise here, but we think Chinese economic data is setting up to slow sequentially in the next 3-6 months.  We were bullish on China all year.

On behalf of my teammates, I’d like to take this opportunity to thank all of you for taking the time out of your busy day to read our work this year. When a lot of people were complaining about the end of the world coming, we tripled the size of our firm, hiring as many of the best people as we could. You, as opposed to the Government, supported that. We are forever grateful.

We hope we made you think about risk, smile about this business, and protect your hard-earned capital along the way.

Best of luck and health to you and your respective families in 2010,



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

EWG - iShares GermanyBuying back the bullish intermediate term TREND thesis Matt Hedrick maintains on Germany. We are short Russia and, from a European exposure perspective, like being long the lower beta DAX against the higher beta RTSI as well.

EWZ - iShares Brazil As 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 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.

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 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.

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.