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“I’m not upset that you lied to me, I’m upset that from now on I can’t believe you.”

-Friedrich Nietzsche

With every crisis, there comes both a cost and an opportunity. One of the most obvious costs coming out of the global financial crisis is trust. Whether it be between the American people and Washington or China and Washington, it’s all one and the same. No one trusts Washington.

When people lie to you, you get upset. When those same people start telling you what to believe, you get angry. This morning you are seeing headlines from China’s Premier Wen Jiabao who is going after Washington for “finger pointing.” The Client is angry.

As he wound down his parliamentary meetings last night, Wen said, “we oppose countries pointing fingers at each other and even forcing a country to appreciate its currency” and then he focused his finger on America in saying that it needs to “take concrete steps to reassure investors” that there is “safety” in dollar based assets. Translation: put a muzzle on Chuck Schumer, and focus on fixing your own balance sheet problems.

For the past 18 months we have affectionately labeled China, The Client. So who is The Angry Client? Is it the conservative American saver who gets zero percent returns on their hard earned savings accounts so that the Piggy Banker Spread can get Wall Street stocks and bonuses back on track? Or is it America’s Chinese creditor? It’s both.

Per its Premier’s comments last night, here’s a focus list of what angers The Chinese Client:

  1. US Dollar Policy
  2. US Fiscal Policy
  3. US Trade Protectionism
  4. US Foreign Policy on Weapons Sales to Taiwan
  5. US President Obama meeting with the Dalai Lama
  6. US Corporates attempting to set Foreign Policy (Google)

Per its citizens last week, here’s a focus list showing the anger of The American Client:

  1. AFTER the SP500 ramped +3.1% in the 1st week of March, the ABC/Washington Post Consumer Confidence reading remained at minus -49 (vs. -49 in the wk prior). Just awful.
  2. AFTER the SP500 has ripped those Selling Fear in February for a +8.7% move to the upside (Feb 8th to March 12th), Friday’s University of Michigan Consumer Confidence report put in a lower-high, decelerating to 72.5 in March versus 73.6 in February.
  3. AFTER putting the rest of America on hold for his final countdown healthcare tour, President Obama’s approval rating hit a new low last week (The Rasmussen Reports daily Presidential Tracking Poll for Wednesday showed that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty-three percent (43%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -21. That matches the lowest Approval Index rating yet recorded for this President).

Yes, willfully blind ones of the Bubble in US Politics, you have a secular problem on your hands. It’s called trust, and it can’t be bought and paid for like your political careers. You can tell me I am lying, but the score doesn’t. Despite a 69.9% rally in the SP500 since March 9th of the 2009 said “great depression”, this is one of the most explosive global votes of no-confidence that we have ever seen. Ever, is a long time.

So where do we go from here? I’m not smart enough to solve for this, so I say every man for himself. We already have raised a 61% position in cash in our Asset Allocation Model. We have a 6% position in US Equities entirely allocated to Healthcare (XLV) because we don’t trust Nancy Pelosi will be successful scaring the horses with reform much longer. We are short the SP500 (SPY) after it made a lower-high on Friday, closing at 1149.

As opposed to the bullish conviction I started to build in the spring of last year, now I do not think that the answer on where global equity, currency, bond, and commodity markets go from here is as clear. In a new world order that doesn’t have trust, what else is there to move forward with?

Accepting that uncertainty drives a dynamic and interconnected global marketplace is a good place for us all to start. With that said, I can tell you with 100% certainty, that the US stock market is either going up or down from here and our collective distrust for those running this joint will remain.

My immediate term support and resistance lines for the SP500 are now 1135 and 1160, respectively.

Best of luck out there today,



CAF – Morgan Stanley A Share — Now that all of the inflation data we have been calling for is on the tape, China's stock market looks like it wants to tell us the news is now baked into the expectations cake. Buying China low.


XLV – SPDR Healthcare — Healthcare was down again on 3/9/10 in the face of “Obamacare” inspired fear. While we fear we may be early here, it’s better than fearing fear itself.


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.


FXE – Currencyshares EuroWe've been saying the shorts would get squeezed to the top end of our immediate term TRADE range for the Euro at $1.37. And they have. Timing is always critical. We took our shot on 3/12/10. 


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 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.


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.