Sleeping Giants

“The great danger for most of us lies in not setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.”



Last night the Canadian Olympic Hockey Team woke up.  The result was a dismantling of Russia in the quarterfinals in Vancouver.  The final score was 7 – 3 and the Canadians outshot the Russians 44 – 28.  If the hockey world didn’t know what the Canadians were capable of . . . well . . . now they know.  The giant is no longer sleeping.


As I was watching the game in the confines of Richter’s Bar and Grill in New Haven, CT, I couldn’t help but smile as the game ensued.  Yes, I’m Canadian, so it was cool to watch my team win.  Yes, it was funny when Keith texted me to tell me that his son two year old son was singing the Canadian National anthem.  And yes, I was drinking Molsons like they were water. 


Most importantly, I was smiling because this is what it is all about. Competing at the highest level and leaving everything on the ice.  Ask Canadian player Eric Staal about that, he left his teeth on the ice last night.  He then skated to the bench, took a tug on his water bottle, and went out for his next shift.   Not dissimilar to stock market operators like ourselves who keep at it every morning, even if we have a bad trade the day before.


At one point in last night’s game, the Canadians were up 6 -1.  Like most Canadians, I was giddy.  But I couldn’t help but notice that Canadian Coach Mike Babcock still wasn’t smiling.  In lieu of the ETFs this morning, we’ve pasted a picture of Coach Babcock’s scowling mug below.  Suffice it to say, this is not the face of man who will let his players “aim too low”.


Similar to expectations for sports teams, global macro data points can be ignored, but that doesn’t mean they cease to exist.  We have a number of call outs on that front this morning that are critical to highlight before the puck drops at 9:30 a.m.


While we have debated whether inflation is occurring domestically with some of our subscribers, the international data points continue to support an inflationary picture.  This morning, India, the world’s 12th largest economy, reported wholesale inflation.  This index, which measures basic food prices, rose 17.6% year-over-year.  That is inflationary.


To their credit, the Indians are concerned about inflation and attempting to address it.  In late January, the Indians raised their lenders’ cash reserve ratio to 5.75% from 5%.  Additionally, last week Chakravarthy Rangarajam, the top economic adviser to Prime Minister Manmohan Singh, acknowledged publicly that there is a danger of high food costs spreading to other commodities.   The Indians may not be setting their “aim too high” in combating inflation, but they are aware of the problem.  And that is a start.


From a longer term perspective, Analyst Darius Dale wrote a great note yesterday titled, Domestic Pigs, regarding burgeoning state deficits, that includes a series of data points that should not be ignored.  If you would like a copy of this fine note and to trial our subscriber service, email us at . To paraphrase the note:


“A recent release by the PEW Center on the States shows a $1 trillion gap between the $3.35 trillion in pension, health care, and other retirement benefit-related liabilities currently on States balance sheets and the $2.35 trillion in assets they have to cover them. 


Currently, 41 States' pension programs are less than 10% funded.  In addition, only 5% of the $587 billion liability for current and future retiree health care and other non-pension benefits is currently funded.


Unfortunately for State governments, purging the balance sheet is only a temporary fix. Across the country, State governments are facing lawsuits from municipalities school districts outraged by budget cuts.


So with their backs against the funding wall, States must find a cumulative $18.8 billion to balance their budgets in remaining months of the current fiscal year and an additional $53.6 in fiscal 2011.”


To be fair, some astute Governors realize the crisis they are facing and are both acknowledging and addressing it.   Most specifically, newly elected Governor Christie told mayors and local officials yesterday in New Jersey to prepare for state aid cuts on a massive scale to address New Jersey’s estimated $11BN deficit.  According to Governor Christie:


“At some point, there has to be parity between what’s happening in the real world and what’s happening in the public sector world.”


We like what we see and hear from Governor Christie.  State deficits are front and center for us as a macro risk and Governor Christie, at least, is trying to be the one Governor who won’t be “falling short” in addressing this macro risk.


Tonight is the women’s hockey gold medal game and on Sunday is the men’s hockey gold medal game.  As one of my friends back home likes to say, “it’s full giddy up time.”  Enjoy the Olympics and may the best teams win.


Keep your head up and stick on the ice,


Daryl G. Jones

Managing Director


Sleeping Giants - mike


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