“He who thinketh he leadeth and hath no one following him is only taking a walk.”~ Anonymous
For whatever reason, there remains a tremendous amount of media driven hope that those who have “leadeth” us into this financial disaster are still capable of leading us out of it. After watching Vikram Pandit being interviewed by Charlie Rose last night, I can assure you that I will not be following this man anywhere. Hope is not an investment process.
After seeing the S&P500 rip the shorts for a +14% three-day move (we made the call pre-market open on 11/21 for S&P500 848, and it closed yesterday at 857.39), the Street’s perpetually bullish narrative fallacies have already swallowed the mainstream media into their groupthink. We took our ‘Hedgeye Portfolio Allocation’ in US Equities down to 6% selling into it. These networks had zero leadership to help them proactively predict this financial tsunami. They understood as little about the October 07’ top as they did last Thursday’s capitulation low. You have no reason to trust their attempt at synthesis as credible. Do so at your own risk.
I was on the road for the last 6 days, so if I am a little snarly this morning, I beg your pardon. Being away from my Bloomberg TV in the mornings and being forced to consume CNBC is as painful an exercise that I can implement into this stage of my daily life. Charlie Gasparino and Dylan Radigan are no leaders of mine. These people actually “thinketh” that they “leadeth”... for those of you who have played competitive sports, I am sure you can appreciate where I am coming from. There is nothing worse than people acting like Captains who were never voted to be by their teammates.
The Chinese are providing the real economic leadership in this interconnected global economy. Yes, this may very well be temporary… and no, this is not an un-American comment. What is un-American is what the said fiduciary “leaders” of our economic system have done to it. Pandit had to be acting last night – here’s a man who sold his hedge fund to Citigroup shareholders for over $800M, right before it blew up, and sat across from Charlie Rose telling him that weakness in Citigroup’s stock was due to “short sellers!” Clearly, “Mr. Vikram” (that’s what his new best friend Alalweed calls him) has no idea what real leaders who can hedge and make short sales in this profession do. He wouldn’t make such an embarrassing comment otherwise.
This overdose of American groupthink really has me concerned. That’s why I have moved back to 71% Cash. That said, I am more comfortable being long China today than I was yesterday, and we will be adding to that invested exposure. The Chinese “mavericks” are marching to the beat of their own drummer, and there are well over a billion people following them. This morning, China cut 1-year interest rates by over 100 basis points down to 5.8%. So now we have ourselves what most capitalists want to see – a government who is liquid long cash, cutting taxes, cutting interest rates, and creating stimulus. This is economic leadership that I can follow.
Now don’t fret, there is always hope that American Capitalism can renew her faith. I think it’s very possible, and this week’s changes to the economic leadership lineup is the first step in the right direction. This morning Obama looks like he is going to appoint The Man, Paul Volcker, to head up the Economic Recovery Advisory Board. Now we have Summers and Volcker, two players we have been championing this country to draft for the better part of the last 6-9 months, playing on the same line! This is progress. This is economic leadership that I can follow.
You see, most of the moves the Chinese Capitalists have been making in the last 3 months are being made because they proactively prepared themselves (and their balance sheet) to be in a position of strength. The scraps that remain of a failed economic Bush team are simply a function of the reality that is born out of attempting to lead a global economy reactively. Last Thursday, at S&P500 752, it felt dark in this country, because it was. Yesterday’s Federal Reserve pledge of $800B is called more leverage. We can call it the “TALF”, the “TARP”, or whatever sounds like a plan… but the plan now is that the plans are going to change. Change is good.
We are short the US Dollar via the UUP exchange traded fund, because predicting the current American losing team’s “leadership” is easy. When in doubt, instead of a good hockey Captain saying “shoot it out”, Paulson calls for “lever it up.” This is what people who believe in themselves to a fault do. They make the capital mistake of repeating their 1st offense, over and over and over… expecting different results.
Post yesterday’s socialist call to arms, America’s balance sheet is levered almost 55x with a capital ratio of under 2%. Hank “The Market Tank” now has this fine country’s Federal Insurance Deposit Corporation (FDIC) backing his cronies bonds (Goldman Sachs) in exchange for a compromise for US homeowners. At every turn, this team’s solution has been to behave reactively and throw more debt at the problem. This is no leadership of mine.
The US Dollar has lost over 3% of its value into and out of bailing out the Pandit “Bandit’s” Citigroup, and the firm Hank levered up when he lead it. US currency weakness is a global market vote of confidence, and it’s not a good one… but for the revisionist historians, it’s probably the right one. Fixing this old boy team’s mess is going to take time and leadership. “He who thinketh he leadeth and hath no one following him” is finally going to take a walk.
Every great investment in leadership starts with a new beginning. On this American Thanksgiving, let’s be thankful for that.
Enjoy your time with your loved ones,
KM
Long ETFs
TIP –iShares Lehman TIPS Bond --10 Year Yields dropped 11 basis points to 3.01 yesterday, near the 2.99 all time record set last week.
OIL iPath ETN Crude Oil –Front Month Light Crude futures rose to 51.86 per barrel on Chinese rate cuts this morning.
EWA –iShares Australia – The OECD released a report estimating that Australia will emerge from recession in 2009 with a forecast GRDP rate of 1.7% due to lower rates and increased exports.
EWG – iShares Germany --Inflation contracted in 5 states including Bavaria -where data show it at 1.5% down from 2.7% last month. Porsche SE reported a 15% Year-over-year for the four months through November and indicated that the Volkswagen (EWG: 13.6%) ownership increase may be delayed by credit market issues.
FXI –iShares China –The People’s Bank of China lowered the benchmark one-year lending rate by 108 basis points to 5.58%, the lowest level in more than a decade. The deposit rate was also reduced to 2.52%.
VYM – Vanguard High Dividend Yield ETF –S&P data showed US equity dividend declining at the fastest pace in 50 years led by financials which accounted for 6 of 8 dividend suspensions or cuts in the S&P 500 month to date
Short ETFs
EWU – iShares United Kingdom – GDP declined by 0.5% in Q3 according to data released today, the first quarter-over-quarter decline in 16 years while consumer spending figures declined by the most in a single period since 1995.
UUP – U.S. Dollar Index – The pound declined to $1.5416 this morning on UK GDP declines.
EWJ – iShares Japan –Fitch reduced its Credit Rating for Toyota Motor Corp (EWJ: 5.61%) to AA from AAA with a negative outlook.
FXY – CurrencyShares Japanese Yen Trust – The yen rose to 95.16 USD and 123.46 EUR this morning as traders are focused on the scope of the US recession.
Keith R. McCulloughCEO & Chief Investment Officer
