Lover's Hour

“Each moment of a happy lover’s hour is worth an age of dull and common life.”

-Aphra Behn

 

I love my family, my firm, and my macro model. There is no hiding love – especially after the lover’s hours we’ve had on the short side of the US stock market for the past few days and weeks. Winners love to win.

 

No, dear Bullish Sirs – this isn’t about slapping you in the face this morning. This is all about a man named Mucker showing you the love. The love of something that brutish men of markets could never understand – the love of a woman.

 

If Aphra Behn were to join the ranks of we who are wedded to our writings, I think she’d have sufficiently stirred the pot of conventional market wisdoms too. In the 17th century she became one of the first professional female writers in England. Per Wikipedia, “She has since become a favorite among sexually liberated women.”

 

Having been ball-and-chained to plenty a Wall Street trading desk in my day, the liberation associated by this great country’s freedom of speech has made me a very happy man. The love I have of seeing the conflicted and compromised walls of the Fiat Republic fall has no end.

 

Being Nemo in the fishbowl has its perks. I get fed a lot of emails. Most of the notes that people take the time to send me are very thoughtful and additive to my risk management process. Once in a while, I get sent something very special.

 

While the bullish brutes were running up the buy-and-hope score in July, an interesting player in this game made my day. He sent me a note that accused me of being married. He wrote, and I quote, that “you sound like a wife defending her husband."

 

Now, both on and off the ice, I have been called a lot of things in my day, but never a wife. If I could be someone’s wife, I would definitely be Laura’s.

 

Altogether, being wed to a view in this business can be as dangerous as being single minded. Being wed to a flexible, multi-factor, and multi-duration investment process is something I may forever wear as a badge of honor that some men in this business will love to hate. I’m cool with that though – I don’t foresee seeking the love of another man.

 

Let’s end this diatribe with what players in this game really feel. They hate being wrong. They love being right. For me, I have been happily wed to the bearish view since I put it on the tape on April 16th. Let’s get back to the positive messaging I am working hard on this week – winning and the love:

  1. Unemployment – yesterday’s jobless claims number was an absolute bomb. As my teammate Allison Kaptur summarized yesterday, initial jobless claims rose 12k last week to 500k, the highest level since November 2009. Consensus had called for a small decline.  Rolling claims rose 8k to 482.5k, also the highest level since last November.  We have been looking for the range of 375-400k as the maximum level for unemployment to fall meaningfully, but with claims moving the wrong direction, the spectre of rising unemployment looms.
  2. US Economic Growth – JP Morgan joined Goldman Sachs yesterday as the latest sell-side firm to cut their GDP estimates for the back half of 2011 closer to ours. As a reminder to all of those who are wedded to the bullish case that “earnings are good and US growth is good”, there is a very high likelihood that US GDP growth comes in at or below the Hedgeye estimate (established via my love letter dated July 1, 2010) of +1.7% for Q3.
  3. US Housing Double Dip – we fully realize that our current 2011 US GDP estimate of +1.7% doesn’t equate to what newsy pundits call a “double dip.” To be clear, we are calling for a significant sequential slowdown in US GDP growth over the course of the next 3-6 months and an acturial “double dip” in US Housing prices over the course of the next 6-12 months (our Q3 Macro Theme call for Housing Headwinds lays out the case for US Home Prices in the Case-Shiller series to drop -15-20% from the cycle-highs that are being established here in Q3).

Now what would my lover’s hour of watching the US futures trade lower again this morning be without giving my bullish friends both a line and a catalyst?

  1. The Line – the next line of immediate term TRADE support for the SP500 is 1058. Below that, the gravitational forces of chaos theory don’t signal any significant support for the SP500 until 1041. That line would register as a 3 standard-deviation move in our immediate term model and a very good spot to be covering shorts, buying some longs, and loving happy hour thereafter.
  2. The Catalyst – the next catalyst is starring us right in the eye on August 24th when the next bomb is dropped on the bulls barns via Twitter, Facebook, and email in the form of the US Existing Home Sales report.

As Oscar Wilde said, “the world has grown suspicious of anything that looks like a happily married life.” But the investment world as the Fiat Republic knows it is ending.

 

‘Tis Lover’s Hour in New Haven, CT. Stay transparent, my friends.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Lover's Hour - bb1


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