Pasteurized Ignorance

“No matter how busy you may think you are, you must find time for reading, or surrender yourself to self-chosen ignorance.”

-Confucius

 

According to the Pew Research Center’s latest study on “Teens and Mobile Phones”, more than half of teens in America send 50 or more text messages a day (33% send more than 100 messages a day) and almost 75% of 12-17 year olds in America have cell phones. If you didn’t know we live in a crack-berry culture of sound-bites, now you know.

 

While Americans are definitely finding time to read, the question remains one of focus. What are you reading? When are you reading it? How do neurological factors in your brain affect the emotional side of decision making based on what you just read?

 

Adults in the investment business do their fair share of headline reading as well. Unfortunately, the pressures that have been institutionalized by short term performance measurements have rendered the historical context behind what we think we are reading into a collective warm boil of Pasteurized Ignorance.

 

On this day in 1862, French chemist Louis Pasteur created the first successful pasteurization test. Per our friends at Wikipedia, “pasteurization aims to reduce the number of viable pathogens so they are unlikely to cause disease… the process was originally conceived as a way of preventing wine and beer from souring.” This sounds like something that the world’s $80 Trillion derivatives market might need.

 

Since 2000, when Congress released the derivatives/leverage hounds, financiers have been getting plenty punch drunk on the profits that came along with the ignorance associated with Opacity’s Child (derivatives). All the while, American tax payers have been battle scarred from a decade of booms, busts, and dry heaves.

 

When I think about Goldman, Lehman, or Bear selling the Street this stuff, I just think of it for what it is. Heck, I’m a “sophisticated investor”, and I should know that derivatives don’t trade over the counter. They do not uphold the principles of transparency that a “free” marketer is sauced up on. And, given that everything else in our society is being posted to Twitter, there is no reason to believe that the rules of a conflicted and compromised derivatives market won’t be changing.

 

That’s it. That’s my take on Goldman Sachs. I really could care less about incompetent analysts at the SEC voting 3-2 on this being fraud. I really don’t care about Goldman’s EPS report this morning either (they crushed the number, reporting $5.59/share in EPS vs. $4.14 expected… and yes, they made a lot of money in fixed income and derivatives trading). I currently have no position in GS. I’ll short it when I am not being asked to 100x an hour. I’ll short it when it’s up and I see my price.

 

All I really care about is the history of the derivatives market in America and whether or not this mega-phone sound-bite provides the political capital for re-regulation of Pasteurization’s Ignorance. There is a long history of required reading here. A lot of it started with ex-Goldman Co-Chairman, Robert Rubin, being the Treasury Secretary. In the end, numbing it down to a French dude named Fab’s trade isn’t going to be the real public debate.

 

So onto the next…

 

Pasteurizing the Washington/Wall Street concept of risk management is the more important task for today. In less than 48 crack-berry hours, the Manic Media has completely forgot about sovereign debt, inflation and, well, pretty near everything! Because people ignored the microbial growth in their drink prior to 1862, certainly didn’t mean that the worms ceased to exist.

 

Here’s the grind on what our Hedgeyes are seeing globally this morning:

  1. Despite a recovery day in the USA, Japanese and Chinese stocks didn’t rally last night and are now both broken from an immediate term TRADE perspective
  2. India sees the ‘V’ in Inflation that we talked about on our Q2 Themes call. India went ahead and raised rates for the 2nd time in a month last night.
  3. Thailand has been getting tagged, dropping 10% in a straight line since April 7th on domestic unrest, and finally had a big up move last night, closing +4.6%.
  4. German ZEW (confidence) hit a 6 month high this morning and German stocks continue to outperform the likes of Spain which is trading down again this morning.
  5. UK inflation zoomed higher to +3.4% y/y growth in their CPI report for March. Yes, at Hedgeye we call this Inflation’s V and its born out of countries with fiat currency. 
  6. Greek bond yields are shooting to record wide spreads versus German Bunds (472 bps wide for 10yr paper) after the Germans reminded us they don’t trust the Greeks. 
  7. Brazil’s stock market broke its immediate term TRADE line of support on the Bovespa yesterday (that line = 70,006).
  8. Gold is starting to flag bullish again (bullish TRADE line of support = $1124/oz) in the face of sovereign debt and inflation risks mounting, globally.
  9. The IMF is proposing a new “bank tax” at the G-20 meetings that started last night.

While we can certainly suck Pasteurized Ignorance from the vacuum of headlines about Goldman that are on the tape this morning, that’s not going to do us a whole heck of a lot of good where it matters. Goldman being regulated will matter, but that’s not just something that’s going to affect Goldman.

 

While he testifies on Capitol Hill today, Tricky Dick Fuld will remind all Americans that we cannot run this country like a Lehman trader would his P&L. Thankfully, those days and ideologies will soon be gone. Or at least I hope they are. Hope, alas, is not an investment process but all that I have left that the 75% of this country’s 12-17 year olds who text one another are going to find a better way.

 

My immediate term support and resistance lines in the SP500 are now 1177 and 1214, respectively.

 

Best of luck out there today,

KM

 

Pasteurized Ignorance - milk

 


7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more