• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here


    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

“A reform is a correction of abuses; a revolution is a transfer of power.”
-Robert Bulwer-Lytton

This is an interesting quote that provides a reasonable metaphor to compare the current US stock market correction to the Western European crash. Despite the 1 TRILLION Euros of Keynesian elixir issued by the Fiat Fools earlier this week, stocks in parts of Europe continue to crash this morning.

Crash? Yes, crash. Both quantitatively (a peak-to-trough drop of more than -20%) and qualitatively versus misplaced expectations that Greece was a “one off” 6 months ago, stocks in Spain and Greece continue to crash. If some of these lying European politicians aren’t careful, domestic revolutions will be next.

Obviously hope is not an investment process, but the hope of the Fiat Fools in America is that the current correction (down -4.9% for the SP500 from the YTD high of 1217) doesn’t morph into a crash. For whatever reason some of the wannabe American patriots in Washington think that reform will provide an acceptable Correction of Abuses. The European story is starting to imply that reform won’t be enough. A transfer of longstanding government power back to the people may be the only long term fix.

Since the Fat Middle Fingers of debt maturities in Western Europe come due before America’s, here’s what some major European markets have done from their 2010 peaks:

  1. Greece, down another -2.2% this morning = -26.5% from 2010 peak
  2. Spain, down another -4.1% this morning = -21.6% from 2010 peak
  3. Italy, down another -3.1% this morning = -15.4% from 2010 peak

So, quantitatively speaking, Italy has not yet crashed, but my call this morning is that it will - and France will too. The CAC 40 Index in France is down another -2.4% this morning taking its peak-to-trough decline for 2010 to -10.5%. The CAC is broken from both a TRADE and TREND perspective. This is new. This is why we shorted France earlier this week on the artificial strength built into a bid by the Fiat Fools.

France, like the USA and the UK, has a said “Triple AAA” rating by our godsends of US analytics - the ratings agencies. This is lunacy, and everyone who understands the calculus of being levered to a fiat currency that is being debauched like the Euro understands that.

Not unlike the financial alchemy embedded in Wall Street’s CDOs, the ratings on sovereign debts issued to countries by the rating agencies is a joke. If you don’t get that joke yet, go buy yourself some marked-to-model government paper in this country or France and Godspeed to you.

This isn’t just my arthritic hockey knuckles being fired up on some Tim Horton’s this morning folks. Wall Street’s best independent credit analyst, Mr. Jim Grant at Grant’s Interest Rate Observer, recently issued his own prospectus on US Treasury bonds. Guess what his view of the credit quality of our fiat paper was? Not good!

The concept of “AAA” is well placed when considering the risks associated with getting into your car. When it comes to your hard earned savings, I think you should use the blind faith that Washington and Paris puts into their definitions of AAA as your contra-indicator. These Fiat Fools have no idea what they don’t know.

If you didn’t know that Piling Debt Upon Debt Upon Debt would result in the world’s leading lagging indicators (the credit ratings agencies) “downgrading” these countries from AAA to whatever double-B-minus-a-banana rating that a monkey could issue, now you know…

One of the ratings agencies is actually making a call this morning that there is an “80% chance” that they downgrade Greece. Seriously, I couldn’t make that up if I tried… so I guess I’ll leave it to them to make up some math on why the probability in their risk management model is precisely “80 percent”???

I’ve written this enough times for most of you to know that this is what I do. I am not a cynic. I don’t get paid like I used to. I am no longer a hedge fund manager. I am your Risk Manager – and I get paid to believe that markets don’t lie; politicians do.

Unlike short term paper from the US Federal Reserve, which is marked-to-model, the Euro is marked-to-market. It too is now on the verge of crashing. The professional politicians in Europe can say what they will. At $1.24 this morning, the Euro has lost almost -18% of its value since November of 2009. If we are right in our intermediate term call for the Euro to test $1.21, there’s your peak-to-trough crash of -20%.

If you don’t think this price move in the Euro is a leading indicator for a crash in Italy and France like you’ve already seen in Greece and Spain, send me your email address. I’ll send you some information on some insurance you can buy ahead of this car crash. It’s a US company that hasn’t been paid off by Banker of America – it’s the credible version of AAA.

We remain short the SP500 (SPY), France (EWQ), and Japan (EWJ). My immediate term support and resistance levels for the SP500 are now 1144 and 1185, respectively.

Have a great weekend with your families and best of luck out there today,


Correction of Abuses - EURO 3 YEARa