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“Never hold discussions with the monkey when the organ grinder is in the room.”

-Winston Churchill

If the early part of the 20th century had their organ grinders performing on the streets, the 21st century has CNBC. Given the repetitious nature of their consensus music, we must be very thankful. I don’t know what I would do without them.

Squeezing the monkeys has to be one of the funniest things to watch in modern day markets. After not focusing on sovereign debt when they should have, the manic media quickly becomes a perceived expert on everything Greek - right at the bottom of both European currency and stock market moves.

What does squeezing the monkeys mean? Well, in a short seller’s market, a monkey is the contra-indicator. He is the last primate to jump out of his tree and try to short something that’s already been in free fall for all other monkeys to see. Monkey see, monkey do.

Typically, the monkey lives in the Zoo of Consensus. So, you can really think about Greece like a banana – after the stock market has collapsed for a -35% down move, enter CNBC’s Fast Money monkeys to clamor for the last feeding.

The actual squeezing of the Fast Monkeys is plainly obvious to anyone watching from outside the Cage of Consensus. This morning, for example, one of the top headlines on Bloomberg is, “Stocks Rise, Greek Bonds Soar on Speculation of German Bailout.” That’s called the monkeys getting squeezed.

Having covered most of my commodity and international equity market shorts at the lows, I can call these monkeys out for who they are. If you don’t know what they look like, tune into the ex-football player with the braided ponytail and Joey, who pronounces Asia’s largest country “China-rrr”, at 5PM on CNBC. The only thing funnier than watching monkeys at the zoo, is watching these ones stare seriously into the camera.

So what to do from here? I think this is pretty straightforward actually. Let the monkeys chase one another all the way back up into their trees. Once they get really quiet again, feeling shame, it will be safe to start selling again.

So far, Greece’s Athex Index is squeezing the monkeys for a +3.9% move in early morning trading. This is after seeing the Greek stock market jam them for a +5% up-move yesterday. At the same time, Greek bonds have dropped 55 basis points overnight  (the biggest one-day move for that local bond market since 1998) and credit default swaps (CDS) in Greece have dropped -17% in a straight line.

Even though Greek CDS has dropped from +428 basis points at the peak of the monkeys yelping (February 4, 2010), credit default swaps are still 357 basis points wide this morning. To put that in context, THE magic risk management line for CDS at both Lehman and Bear Stearns was 300 basis points. So the monkeys are rightly worried about having no more Bailout Bananas, but they forgot the most critical part of this risk management game – timing.

I wrote about this 3 months ago, because I saw no irony in both the Greek and Middle Eastern stock markets locking in their recent cycle-highs on exactly the same day. On October 14th, both Greece’s Athex and the United Arab Emirates DFM Indices locked in their highs. Since, both markets have lost over one-third of that peak-to-trough value, and it’s critical to observe their collective behavior.

As all of the monkeys are clanging for the Germans to bailout the Greeks this morning, stocks in the United Arab Emirates are trading down almost -1.5%. I don’t see any media outlet talking about it yet, nor do I hear any of the monkeys.

For 2010 to-date the Greek and UAE stock markets (inclusive of this morning’s moves), are down -10.3% and -9.1%, respectively. Since October 14th, now they are both down the exact same percentage, -32%. Irony or simplicity? Chaos or complexity? Or is there no or in Bailout Banana?

The most recent Piling of Debt Upon Debt data points this morning are as follows:

1.       Romania wants to sell another 1 Billion Euros in Euro denominated debt

2.       Dubai World (UAE) is asking for a “freeze” on their $22 Billion Dollars in debt

3.       Yale University edges out Harvard in issuing a massive muni-bond deal ($530M of 2025 notes)

Tying all of these things together can be frustrating, particularly if you don’t have a repeatable risk management process. You need to have your feet on the floor before the entire zoo wakes up. You need to do it every day, including snow days.

There is no glory. There are no lights. But at least no one can call you a Fast Monkey.

My immediate term support and resistance levels for the SP500 are now 1048 and 1078, respectively.

Best of luck out there today,

KM

LONG ETFS

 

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 — We added to our position in Germany on 2/4/10 on 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.  

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

 

RSX – Market Vectors Russia We shorted Russia on 2/9/10 and maintain our intermediate term TREND bearish view on the price of oil.

XLP – SPDR Consumer StaplesThe Consumer Staples sector finally broke both our TRADE and TREND lines on 2/8/10. Given how many investors own these stocks because it was a "way to play the weak US Dollar" last year, we have ourselves another way to profit from a Buck Breakout with this short position.

 

EWW – iShares Mexico Mexico short is a solid compliment to our concerns about sovereign debt risks and our bearish intermediate term view on oil.

 

EWJ – iShares Japan We re-shorted Japan on 2/2/10 after the Nikkei’s up move of +1.6%. Japan's sovereign debt problems make Greece's look benign.

 

UNG – United States Natural Gas Fund Macro DJ (Daryl Jones) and I remain bearish on Commodities. Natural Gas had a healthy price pop on 2/1/10, prompting us to short it. 

 

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.