The Maestro

Due to a lack of connectivity this morning up here in Maine, I am writing the intro to this morning's note, and my new partner on the Macro Research front, Daryl Jones, has my back with the global macro recap. Daryl is also a hockey player, but he is what they call a “stay at home defenseman”, which in laymen’s terms means that he is not afraid of the rough stuff, so this is a great morning for him to be stepping up.

When my laptop bonked on me at 4:45am this morning, I was not enthused...After a strong cup of 'The Victorian by The Sea's" coffee however, I found my resolve in an inspiring talk that the renowned maestro of the Boston Philharmonic gave to us last night.

Ben Zander has been teaching music in New England for 43 years, and when it comes to understanding life, he gets it. Last night, Zander walked us through a simple yet profound mental model. He said "look, you have one of three choices when faced with challenges in your life... Resignation, Anger, or Possibility”.

I'd like to thank Zander for this clarity. From a market strategy perspective, this morning it is the most appropriate thought that I can pass along to you from Camden, Maine … Maybe you've resigned yourself to the bearishness of the moment, or maybe the market angers you throughout your day... The reality is that if you have chosen either of these two resolves, you are now transcending consensus.

I see this point in American financial history as the most exhilarating of opportunities. This is the time to be a capitalist. This is the time for new possibilities. This is the time, as Ben Zander would say, to "get up, and conduct!"

As an athlete or an investor, this is when we want to be on the ice, on the field, or in the market. The CNBC talking heads are highlighting that futures in the U.S. are limit down. This is on the back of most global markets being down between 7 – 10%. We won’t mince words, it is ugly out there.

All global asset classes are on sale this morning – commodities, currencies, bonds, and equities alike. Even purportedly positive news, like OPEC cutting production by 1.5mm barrels, is having no impact as crude oil is trading down over 5%.

The dramatic decline in oil from the “It’s global this time” peak has been vicious. As we highlighted in a note to clients last weekend, in the last major recession oil demand in the U.S. was down for five years and down 19% peak to trough. Let us repeat, recessions are not the times to bottom pick commodities.

On the Japanese front, the Finance Ministry reported overnight that country’s trade surplus for the first half of the fiscal year (April – September) had fallen almost 86% y-o-y. This is a country we have and continue to be negative on and this data point clearly only bolsters the case.

We have been following former Fed Chairman Alan Greenspan’s testimony in congress the last few days. And there is a one word summary. Embarrassing. Not embarrassing that Greenspan is completely unwilling to admit any fault, for as we’ve seen the Washington and Wall Street elite never hold themselves accountable, but embarrassing in that he wants us to believe him. Greenspan in his testimony stated: “Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity (myself especially) are in a state of shocked disbelief.”

"Shocking"? Mr. "Maestro", are you kidding me?

That sounds like the real maestro, Ben Zander's, "Resignation" excuse to us...

Undoubtedly, that excuse will perpetuate "Anger" out there in the market today - it should.

The music has stopped. The leverage game has ended. If you saw this ending coming, congratulations. This is the time for the proactively prepared to seize the promise of new "Possibility" that the accountable forefathers of American Capitalism envisioned.

Good luck out there,

Keith and Daryl