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“It's not just a rock.  It's forty-two pounds of polished granite, with a beveled underbelly and a handle a human being can hold.  Okay, so in and of itself it looks like it has no practical purpose, but it's a repository of possibility.”

-Paul Gross

Keith and I have enjoyed watching the first few days of the Winter Olympics in Vancouver.  The opening ceremonies were breathtaking despite a few minor glitches and Canada has already had a strong showing in competition.  In fact, Canada is currently sitting in fourth place in medal count and has won two gold medals.

While this is a great start to the Olympics, most Canadians are of course waiting for the medal round to begin for Canada’s most dominate sport.  That sport is, of course, curling.  While I’m sure most of you thought I was going to say hockey, and while we Canadians are pretty darn good at hockey, we dominate world competition in curling.  In fact, there have been 51 World Championships for curling and Canada has won 31 one of them and finished in the top three more than 90% of the time.  Never has a nation so dominated a major international sport!

In the short term, I am confident that Canada’s domination in curling will continue. In the longer term, for Canada to dominate, she will have to continue to do all the right things.  As we look around the global macro map this morning we see a number of countries that have dominated historically, and are now starting to lose, to use a curling term, “the hammer”.

Most notably this morning on that front is Great Britain.  For the first time since 1993, which is as long as records have been kept, Great Britain has recorded a deficit for the month of January.  Since January is typically the month of the most tax receipts, this is a concerning data point for Her Majesty’s fiscal health, as revenues should be higher than expenses in January. 

This burgeoning deficit is only one of many concerning factors in our economic model for Great Britain.  As our European Analyst Matt Hedrick wrote yesterday, Great Britain also has a growth problem (GDP up only 0.1% last quarter), an unemployment problem (7.8% unemployment which is the highest in 12-years), and looming inflationary pressures (CPI up 3.5% year-over-year in January).  Curling has a rule that allows a team to concede defeat when a win seems very unlikely.  While we are not sure Great Britain will concede defeat on her economy, we will remain short her in our virtual portfolio via the etf EWU.

As we prepare our virtual curling brooms for the market "bonspiel" to open this morning and review the global macro news from our “hack” here in New Haven, we are encountering a number of data points that are important to highlight before the “lead” throws the first few "rocks" today.

First, the dollar is up again to nearly a nine month high versus the Euro.  This is on the back of an expectation for better relative growth in the U.S.  While the U.S. probably doesn’t deserve much more than a golf clap for outgrowing the United Kingdom and the Eurozone in this year’s market bonspiel, the fact remains capital will flow to those economies that recover quicker.  The U.S. dollar price action this morning continues to support our long position in the U.S. dollar in our virtual portfolio via the etf UUP.

Second, the IMF announced its intention to sell just over $6BN in gold this morning.  This has gold selling off just over one percent this morning.  While this move has the gold bugs scrambling, it is obviously a supportive data point for our bearish case on gold based on an increase of supply into the markets.

Finally, we wanted to highlight a key point from the municipal bond world this morning.  We currently have no position in that market, but are starting to see signs that the domestic municipal bond market could be going the way of sovereign debt.  This morning the Los Angeles School district announced a $1.75BN bond offering.  While we are all for school improvements, selling massive amounts of debt when you are running a deficit (as Los Angeles is), is not the best strategy if you want to win in the last “end”.

“Hurry hard” is one of many expressions that curlers yell at their rocks as they are sliding down the ice.  While sweeping the ice in front of your curling rock will help it move faster, yelling at a rock will have a limited real impact and is really much more of a tradition.

The global macro market "bonspiel" is not dissimilar.  While we can hope that our positions go our way and we can yell at our Bloomberg screens, as “Skip” McCullough likes to say, “Hope is not an investment process.”  The best process is in fact to get your brooms on the ice early and prepare for the market "bonspiel" while your competitors are still celebrating yesterday’s successful “hit and rolls”.

Good luck at the rink today,

Daryl G. Jones

Managing Director


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).

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.


EWU – iShares United KingdomThe TREND of higher y/y inflation and stagnant growth = stagflation. For a country with the UK's balance sheet and leadership problems, that’s not good.  


SPY – SPDR S&P 500We re-shorted the SP500 at an attractive re-entry point on 2/16/10. We are bearish on US Equities for the immediate term from this price. Shorting green.

XLE – SPDR EnergyWe remain bearish on Oil for the intermediate term TREND and bullish on the US Dollar on the same duration. Everything has a time and a price.  


GLD – SPDR Gold We re-shorted Gold on this dead cat bounce on 2/11/10. We remain bullish on a Buck Breakout and bearish on Gold for Q1 of 2010, as a result. 


RSX – Market Vectors RussiaWe 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.

EWJ – iShares JapanWe 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.

IEF – iShares 7-10 Year TreasuryOne of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.