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We have very healthy degree skepticism of Government, Politicians and the current market rally. Our Bear Market Macro theme for Q3 remains. We just shorted the S&P 500, as we have been waiting on this level all week. Here's where we take our first shot again on the short side after a bear market rally.

Market sentiment:

(1)    More downside than up - Coming into today’s trading the range for the S&P 500 is 71 points or 6.1% (1,005) downside and 0.5% (1,076) upside.  We have not been short the S&P but are looking to get more aggressive on the short side.

(2)    Volatility is bullish on all three durations - TRADE, TREND, and TAIL.

(3)    We have moved higher in the S&P500 this week up 4.6%, on low volume and the RISK trade outperforming.

The economy:

(1)    Economic data, on a domestic and global level, has been increasingly bearish of late.

(2)    We are below consensus for GDP growth in 2H10 – consensus estimates will need to be revised down going forward.

(3)    Jobless claims saw an improvement but it was not significant enough to materially improve the unemployment rate. 

Interest Rates:

(1)    Bernanke needs to “Get It Off Zero”.  See Keith’s post from yesterday; lack of incentive to save and a tax on fixed income is a serious concern.

(2)    The bond market is closer to recognizing reality – 10yr bonds trading below 4% is a warning sign.

(3)    Bearish MACRO headwinds make it increasingly less likely that we’ll see a rate hike in 2010.. and perhaps not even in 2011.


(1)    Commodity-driven markets (Australia, Brazil, etc.) are broken on TREND.

(2)    Copper prices continue to signal slowing global growth.

(3)    Gold prices have traded down for three straight weeks - think John Paulson and redemptions.  We are long gold in the Hedgeye Virtual portfolio.

The consumer:

(1)    Consumer spending trends are slowing, and will continue to slow in 2H10.

(2)    Consumer confidence had recovered from the lows, but is likely to fall aging in July.

(3)    Initial Jobless claims do not support lower unemployment. 

Have a great weekend,

Howard Penney