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“We saved the economy, but we kind of lost the public in doing it.”

-Tim Geithner

The most obvious reality of the entire financial crisis is that those who created it will not be held accountable for doing so. I was talking to my Dad about it at dinner last night (he’s a retired firefighter), and he likened it to an arson pleading to be recognized as the heroic firefighter. My Dad is right – this is just plain sad to watch.

Churchill once said, “a politician needs the ability to foretell what is going to happen tomorrow, next week, next month, and next year. And to have the ability afterwards to explain why it didn't happen.” Thank you Winston – you certainly didn’t lack the self-awareness that those living in the Bubble of US Politics do today.

Timmy, sorry to break it to you buddy – you didn’t save us. You “kind of lost the public” circa 1, when you became a lifer at the Treasury and Federal Reserve. I agree with the article in The Atlantic, you definitely became a “superstar of the bureaucracy” in the last 22 years. You tried your best to save the legacy of Groupthink Inc., and now it’s just time you realize that it’s over. As they say on American Idol, “America has voted.”

Last week, global stock markets around the world were saved from those who have been Selling Fear for the better part of the last month. The SP500 was up a big +3.1% for the week, taking its rise from the sovereign debt ashes of February 8th to +7.7%. History can be really hard to remember for those who sold the March 9th low of 2009, but the SP500 is up +68.3% since this historical day of last year.

For those of us who have come to grasp the global risk management concept of interconnectedness, it’s probably not surprising that February 8th was also the day that the Greek stock market bottomed. Since February 8th, the Athex Index in Greece is up +16.1%!

Did Timmy and the boys in Washington save you from getting squeezed on the short side of that move too?  Or did Groupthink Inc. in Washington have a proactive risk management process that saw sovereign debt risks to begin with?

Maybe Nicholas Sarkozy of France can save us from the evil doer “speculators” who happened to notice these wanna be Vogue star politicians piling debt upon debt upon debt as being a bad thing. Maybe someone in America should remind Timmy that the US deficit to GDP ratio of 11.4% is within 100 basis points of Greece’s, and that he should be working on that math instead of doing PR shopping trips to prove to himself that he is Captain America.

After moving to neutral (from bearish) on US Equities on the week of February the 22, I finally re-shorted the SP500 on Friday’s close. This doesn’t mean I am calling for a stock market crash. This simply means that the risk management system that we refresh for every 90 minutes of marked-to-market trading flashed an important sell signal.

I know, I know. Those who operate with more of a reactive than proactive risk management process are going to tell you that you can’t time markets but, at the same time, they can save you from all your fears. It’s kind of weird, but take their word for part of that – they definitely don’t do timing.

The SP500 is now in what we call a bullish intermediate term TREND position. Importantly, that TREND line of support is -2.8% from Friday’s closing price. That’s a downside risk level to manage towards. I also have a more immediate term line (3 weeks or less) of what we call TRADE line support at 1113, so keep an eye on that.

Other global macro stock market risk factors (bearish market indicators) to keep your Hedgeyes on would be:

  1. Chinese stocks remaining below intermediate term TREND line resistance of 3,153 on the Shanghai Composite
  2. Spanish stocks remaining below intermediate term TREND line resistance of 11,394 on the IBEX 35 Index
  3. Greek stocks remaining below intermediate term TREND line of resistance of 2,178 on the Athens General Share Index

Across asset classes, there are also some interesting developments this morning, particularly in the US Treasury market. Apparently Mr. Macro Market doesn’t see “the alternative” that these politicians continue to fear-monger Americans with in trying to justify a ZERO percent rate of return on your hard earned savings accounts. Put another way, Timmy saved the lenders, not American savers. Ching Ching to the Federal Reserve Club of New York!

Short term bond yields are breaking out to the upside this morning, with 3-month Treasuries hitting new YTD highs at 0.15% and 2-year yields breaking out to the upside above my intermediate term TREND line of 0.86%.

You didn’t just lose the public with this Great Depression narrative Mr. Geithner. You “kind of” lost whatever credibility was left in considering yourself, Larry Summers, and Robert Rubin the smartest guys in the room. In real life, smart people can get things really wrong.

What America fears now is very well placed. America fears the Perceived Wisdom of government bureaucrats. You guys simply don’t know what you don’t know. Please save us from having to endure watching your PR campaign. It reeks of the Bubble in US Politics that this marketplace’s real-time firefighters now have to manage risk around.

Best of luck out there today,

KM

 

LONG ETFS

XLK – SPDR Technology — A down day on 2/22/10 prompted us to buy more XLK. We expect to see some positive mean reversion for Technology as M&A picks up.

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.
 

SHORT ETFS

SPY – SPDR S&P500We moved to neutral (from bearish) on the S&P500 on the week of February 22. At 1139, for the immediate term TRADE, we’ll go back to bearish. This market is finally overbought. We shorted SPY on 3/5/10.

 

EWP – iShares SpainThe etf bounced on 3/3/10 in part from a strong day from Banco Santander, the fund’s largest holding in the Financials-heavy (43.8%) etf. We shorted Spain for a TRADE again on 3/5/10 as every sovereign debt risk has a time and price to be short of. We have a bearish bias on the country; massive unemployment, public and private debt leverage, and a failed housing market remain fundamental concerns.

 

IWM – iShares Russell 2000With the Russell 2000 finally overbought from an immediate term TRADE perspective on 3/1/10 and added to it on 3/2; we got the entry price that the risk manager makes a sale on strength.

 

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.

 

XLP – SPDR Consumer Staples Another capitulation squeeze is in full motion for the short sellers of everything "consumer". Shorting green as inflation starts to creep into the system again.

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.