“Desperation is sometimes as powerful an inspirer as genius.”
-Benjamin Disraeli
Benjamin Disraeli was one of the more socially conservative political leaders of 19th century Britain. He was twice the Prime Minister of the United Kingdom. He was a romance novelist. He was Liberal Party leader, William Gladstone’s, intense rival.
Disraeli’s aforementioned quote has stood the test of political time. Today’s meme machine of CNBC has reduced the political senses of this fine nation’s said leaders to a numbness that sometimes easily confuses capitalism with socialism and morality with morass. Sadly, political desperation has become the only light that guides them.
I’ve been chirping for some time now that President Obama Needs A Win and that the probability was heightening of his advisors having him go deep for the political end-zone against Wall Street’s bankers. No matter where you go this morning, there it is.
The President appears to be serious, so I say Game On. This is a short term fight that this country needs to have unless we want to make this a long term Japanese experience.
Here are the two teams (represented by two partisan newspaper headlines this morning):
1. Wall Street – “Wall Street reacts badly to President Obama’s bank regulation proposals” (Wall Street Journal)
2. Main Street – “President Obama makes Paul Volcker flavor-of-the-month” (Washington Post)
Here are the team Captains:
1. Wall Street – Timmy ‘The Squirrel Hunter’ Geithner
2. Main Street – Paul ‘Lord Voldemort’ Volcker
Here is the score: Wall Street 7, Main Street 7.
Wall Street scored first (earlier this week) with a big political win in Massachusetts. Some Republicans won’t like the sounds of that because they want to be considered the good guys who really get economics, who had nothing to do with creating this mess to begin with - but I guess that’s too bad. The reality is that the SP500 hit a 15-month high that day (1150, up +70% from the March 9th low), the Piggy Banker Spread hit all-time wides (+286 basis points), and Bankers issued themselves record bonuses.
Main Street scored in the back half of this week with Obama benching a conflicted and compromised Geithner defense, and putting the ‘C’ back on the old veteran Volcker’s jersey. Some Democrats won’t like the sounds of that because I’m suggesting that this appointed Democrat bench of economic soothsayers is incompetent. I guess that’s too bad too…
Have no fear political partisan, I am not taking sides here. Remember, I AM Canadian!
After all of these politicians and bankers missed calling the crash that they created, they have assigned themselves the titles of professional Crash Callers and Risk Managers. It’s a joke. Now that we have pricked the intermediate term bubbles in gold and short term treasuries, the only long term bubble that remains is that in which these politicians and bankers live.
Where will the score go from here? Well, we will have to see - but I am certain of the game plans:
1. Wall Street will try to scare the hell out of the American citizenry with threats of what this could do to their stock market, jobs, and children
2. Main Street will try to cry to the referee on a 10% unemployment rate and a Piggy Banker chowing down on the rate of return on their savings accounts
Scare and whine tactics. It’s going to be the Super Bowl of political bubbles, and Obama Needs A Win!
We’ve cornered the market on front row seats for this one. We’ll be in it to win it with a daily risk management view of all the moving parts. For now, we remain bullish on the US Dollar and bearish on Gold. Rather than supporting an unreasonable and unsustainable view of ZERO percent rates of return on Main Street’s savings accounts, we currently have a ZERO percent allocation to Commodities in our Asset Allocation Model. Everything, however, has a price.
As prices and player performance in this new game change, we will. After seeing Tuesday’s +1.3% Massachusetts melt-up, and yesterday’s -1.9% Main Street melt-down, does macro matter? The fans apparently think it does, and we think you should too. So let’s get our real-time risk management game faces on and get at it.
The SP500 broke its immediate term TRADE line of support (1126) yesterday. Now that’s your line of resistance. The intermediate term TREND line of support is down at 1095.
Best of luck out there today,
KM
LONG ETFS
EWC – iShares Canada — We remain bullish on the intermediate term TREND for Canada. With a pullback in the ETF, we bought Canada on 1/15/10 and 1/21/10.
XLK – SPDR Technology — We bought back Tech after a healthy 2-day pullback on 1/7/10.
UUP – PowerShares US Dollar Index Fund — We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).
VXX - iPath S&P500 Volatility — The VIX broke down to our immediate term oversold line on 1/6/10, prompting us to add to our position on VXX.
EWG - iShares Germany —Buying 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 12/8/09 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.
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 mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.
SHORT ETFS
IEF – iShares 7-10 Year Treasury — One of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.
RSX – Market Vectors Russia — We shorted Russia on 12/18/09 after a terrible unemployment report and an intermediate term TREND view of oil’s price that’s bearish.
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.
SHY - 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.
