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“When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.”   
-Alexander Graham Bell
I expected much more from yesterday.  It’s not that I like to revel in the agony of others, I just like good theatre. Yesterday the “Super Bowl of Politics” was one of those days where you knew what was going to happen and it happened as planned, but I was hoping for some fireworks.  
With the market up 62% from the March 2009 low, the door on the financial crisis is closed.  Yet politicians and policy makers are looking at the closed door.  
Act I - Tim Geithner continued to use his fear-factor strategy to defend his actions and employed the age old theory of “If the facts don't fit the theory, change the facts.”  The real tell on how he fared during the day was when the camera focused on him during the State of the Union - he looked beaten.    The Treasury secretary did what he needed to do to ensure job security once he leaves Washington.   
Caroline Baum of Bloomberg news made a great point that firing Geithner might be good for both President Obama and  the Treasury secretary, stating, “Obama would be seen as an ally of the people and Geithner would be free to claim his just reward:  that plum offer from Goldman Sachs.  The circle would be squared.  Obama would have his man on the inside.”
Act II - We then moved to the "exceptionally low" for an "extended period" stage.  I’m YOUTUBING myself on this one.  I have written many times that the Fed was going to change the language in its policy statement in January.  The Fed did not, and I was wrong.  
Can you learn from your mistakes?  Yes, you can. Ben Bernanke is just another Washington insider that is fighting for his job; of course he is not going to change the language in the policy statement if his job is on the line.
It gets better.  Two days before the government reports 4Q09 GDP, the Federal Reserve declared that the U.S. economy is in “recovery” mode.  Yet, it maintains a monetary policy that was put in place during the “great recession.”  As of tomorrow, by definition, the recession is over as the U.S. economy will have posted two straight quarters of GDP growth.  
Most people believe that the initial estimate of GDP is the most heavily rigged and politicized data point put out by the government. Knowing this, do you think tomorrow’s GDP number is going to be better or worse than consensus?  Yes, the Fed is trying to tell us something.  
What are the markets doing with this information?  As of 5 am, stocks around the world are rallying and the futures in the U.S. are indicated higher.  The VIX is down 5% and the Dollar index is flat on the day.  Another door has opened, but Ben is looking at the closed one!
Act III - The State of the Union was a non-event, too.  I love America and last night was a very important part of our Democracy.  I wanted to listen to the President, who is known for being a great orator, deliver a great speech.  The likelihood of the speech including something shocking was low, but that’s ok.  More importantly, I could care less if the RIGHT or LEFT approves of what he was saying - we know what each stands for.  
Is it just me or was it nauseating to see Nancy Pelosi and Joe Biden shaking their heads and jumping up and down every five minutes. Personally, I think his speech would have been far more effective if all of the partisan politicians would just shut up and let the President speak.  Now that would be good theatre!
Yesterday, the Financials (XLF) was the best performing sector by a moon shot, outperforming the S&P 500 by 190 bps.  The outperformance was even more telling knowing that the President has the bankers in his sights and said so last night.
I’m going to give the President the benefit of the doubt that he is looking through the door that has opened for him.  We will know for sure if and when he begins cleaning house and gets rid of some of the dead wood lying around.
Function in disaster; finish in style
Howard Penney
Managing Director


XLV – SPDR Healthcare
— We bought back our bullish intermediate term view on Healthcare on 1/22/10.
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).
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.


GLD – SPDR Gold Shares
We re-shorted Gold on a bounce on 1/25/10. We remain bullish on the US Dollar and bearish on the intermediate term TREND for the gold price as a result.

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.