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The Global Macro Investor 2008

Issue No. 52 June 2009 Javea, Spain_____________________________________________________________________________

June 2009 Monthly

In this edition:

Introduction You are always on my mind

Trade Recommendations US 10-Yrs, GBP/USD,Euro/GBP

The Business Cycle

Charts to make you go Hmmm

o US Banks

o Xerox

o Gold

o Oil

o Agricultural Commodities

o Pharma Stocks

o Nat Gas

o Platinum and Palladium

o Asian Currencies

o Australian 2-Year Rates

o Eastern European Currencies

Positions (both open and closed out)


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Monthly Publication No.52 June 2009____________________________________________________________________________________

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The Global Macro Investor 2008 2

Introduction

You are always on my mind

There are several things playing on my mind whilst I wait to see whether the markets roll overagain and the economic bounce proves to be something of a false dawn.

Real Yields

The first thing that concerns me is the explosion in real yields. The markets havent woken upto this nor to the implications.

Out of control

Currently 10-year real yields are trading at 4.16%. We are now so far out of the range it isextraordinary this is the fastest rise in real yields for a very long time indeed. Last week atone point real yields hit 4.5%.


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To put this in perspective below is the long-term chart of US real yields. They are very highcompared to the long-term average.

Third highest real yields in history

Note that we have spiked above this level only two times in history; the most recent was theVolker spike that saw off the end of inflation, and the second was in the 1930s where realyields exploded into 1930 and the economy collapsed. The latter was caused by adeflationary shock and is the most similar to now, as we are yet again facing deflation.

CPI should fall further... mathematically

Mathematically speaking, we should see a further fall in CPI into the summer, where it couldfall below -2%.

If we see -2% inflation and 10-year bonds stay around the 3.5% level, we would see realrates at 5.5%. This would comfortably be the tightest monetary policy in this part of the curvefor decades, and would be a major shock to the system.

Mortgage rate nightmare

Why is this so important?Well it greatly affects mortgage rates. US Real Mortgage Rates arecurrently at 7%. Forget the tightness of lending standards; mortgages are becomingmassively expensive even if you do get a mortgage approved.

Imagine if mortgage rates stayed at this level over the summer, monetary policy forhomebuyers would be almost as tight as the Volker years with real mortgage rates at 9%!


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This is the path to deflation. Fact.

Is this really what the US economy wants and needs? Is this really the way to fight deflation?Even an economics 101 student could tell you that this is the way to fight inflation notdeflation. It will cause further deflation.

Insanity

To me this is bordering on economic insanity, especially when we have the largest ever

amount of mortgage resets on the horizon during a period of one of the highest real mortgagerates in history (and the extra bite of tax increases).

See the chart of Mortgage Resets there is not so much a wall to climb, as a mountain.Yikes!


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Real rates here historically cause deflation or dis-inflation

Check out the long-term chart of US inflation the last two times that real rates reached thislevel (1930s and 1980), inflation absolutely collapsed, further pushing up real yields.

In a system that is 400% of GDP in debt, this absolutely cannot be allowed to happen or wewill see an event as bad as the 1930s, where the real debt burden exploded crippling theeconomy for decades and causing huge scale bankruptcies from debtors.

Government borrowing

But government borrowing is going to lead to inflation, isnt it? Isnt borrowing out of control??

Now I know that many of you will be jumping up and down, yelling that inflation is comingbecause of the huge growth in government borrowing. Certainly you are right that thegovernment is going gangbusters to borrow money to inject it into the economy.

You can see that from the chart overleaf the scale of government borrowing is

unprecedented.


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But government debt is only part of it

But as I keep arguing, this is only part of the equation. At most other levels the economy isgetting rid of debt... just look at Household Debt Growth it has collapsed.


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If we invert the graph of Household Debt Growth and put it against Government Debt Growth,you can get an idea of what is really happening

This data excludes mortgages, so we need to look at that too Mortgage Debt is implodingas well


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And so is Consumer Credit...

Debt is being shed everywhere

We see similar collapses in debt growth in the corporate and business sectors too amongstothers. Everyone is shedding debt as fast as they can. This is generally referred to as a debt-deflation

There is a fight for the life of the US economy going on

The US Government is in a fight for the life of the US economy.

GDP grew from 2000, mainly as a result of debt growth, and without that debt explosion, USGDP would have only gone up by about 1%. However, if debt fails to grow then the whole

system falls down, as they will be unable to stimulate GDP enough to keep it above zero forany period of time.

To put this in perspective, this is the largest fall in household net wealth in real terms in post-war history. The chart overleaf is the YoY change in real terms of household wealth accordingto the Fed data. Someone has to try to offset this if they can.


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Velocity of money what velocity?If we look at it another way (to ram the point home a little further), another thing that haseveryone screaming is the growth in the money supply. Well it is worth pointing out that eventhough the money supply may be growing, it is failing to have much impact due to the velocityof money collapsing


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Everyone thinks that the Government is about to generate huge inflation

The problem as I see it is that EVERYONE thinks the US will generate too much inflation fromrunning the printing presses, hence the recent massive back-up in yields.

But the rate oftotaldebt growth is collapsing

So how is the Government getting on in its attempts (as the market believes) to generatehuge inflation?Contrary to what the market thinks (as ever because they havent done theirhomework), debt growth is collapsing as shown on the chart below. This is stupendouslydeflationary. What is it that people dont get about this?

This chart of total US debt growth is one of the most important charts that you will see. Pleasespend time thinking about it and then thinking about your views on inflation, bond yields andthe potential for a Dollar collapse. Can you justify those views empirically?

As I said before this is a debt-deflation, with debt growing at the second lowest rate in fiftyyears! God help us if we slip into negative debt growth

The Government is losing its fight to inflate or die and its losing it by a big margin!

I think the markets perception and the economic reality of inflation/deflation is so out of whackthat it is at risk of forcing even worse deflation upon us.

We really need the US Government to inflate more much more just to save the economyfrom a decade or longer of sluggish growth and persistent deflation.

I think that this mismatch between perceived debt growth and reality is a very dangerousthing. We are in grave danger of allowing political pressure to hamper attempts to inflateenough. The markets misunderstanding of this is also another big problem.


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The Government however has no choice but to be cautious it cannot lose its reserve status

Everyone is terrified of causing huge inflation and thus the Government and Fed will beforced to err on the side of caution.

Why?

The US Dollar cannot afford to lose its reserve currency status. It would be a total and utterglobal catastrophe at this point.

Were that to happen rapidly, we would almost certainly see hyperinflation take root in the US.100% of world GDP in debt is enough to scare anyone out of the Dollar if they think it is goingto lose its reserve status. It would be economic suicide and would bring an end to the USdomination of world affairs rapidly and destructively. It is in no ones interest

The US faces no choice just like the UK in the 1920s

As ever, there is a precedent to this situation to support my arguments, I dont pluck this stufffrom thin air you know!

After World War I Britain, which then enjoyed reserve currency status, was saddled withenormous debts. The other two European powers; France and Germany faced similarproblems. Britain however, chose a very alternative path. The UK did not want to and couldnot give up its reserve status and believed that it would unhinge world markets entirely if it didso. This could not be an option as the world needed to repair itself after the war.

It therefore chose the path of allowing deflation and recession as opposed to huge inflation, toerode the value of its debts. From 1920 to 1922 the UK saw prices fall in total by 30%, andtwo million people lost their jobs.

Germany and France on the other hand, had lost everything and did not enjoy reserve statusanyway. They decide to inflate instead. France saw an inflation of 30% while Germany hithyperinflation as it saw no way out of the negotiated settlement that had been forced upon itby the Allies.

A managed deflation is the only choice

I think that the US, given the choice, would choose to keep reserve status and try for amanaged deflation with less of an impact on prices and employment. It is the only option thatmakes sense. Trust me, the politicians and the Fed are not blinded to this. It would beludicrous to assume so.

But who will buy the new debt issuance?

What I can see so far is that the US is trying to manage its deflation the best that it can. Thenext thing it needs is a buyer for the all the debt that it is issuing

The system desperately needs income

This is another case of the markets not understanding how things work. If debt is being takenout at every level except government, then what happens to all the holders of the debt whowanted the income? Well they have to choose to buy the government debt. Generally this is

done in the form of incentives. Japan and Switzerland have found the way to do it.


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But the US also needs to rely less on foreign lending, and it is doing so

The US needs to sell its bonds domestically and not internationally. That means shrinking thetrade deficit, which is already starting to happen as a consequence of the fall in consumption.It was consumption that drove this deficit and this is now unwinding. That will get rid of theissue of Asian holders of treasuries. This imbalance needs to go for the sake of US nationalinterest and international interest.

We have just witnessed one of the largest shrinkages of the trade deficit in modern history,and that process will continue. Everyone needs it. Asia need to rely less on the US consumerand the US needs to rely less on debt.

It needs domestic lenders

So now that the US is becoming less reliant on foreign lenders, and will do so even more inthe future, it can turn its attention to stimulating its domestic market.

Banks - they will be queuing up to buy bonds

The first thing that will happen is that as banks clean up their balance sheets, they willbecome larger holders of US debt. In essence, banks end up lending to the Government asopposed to the private sector. This is exactly what happened in Japan.

Surely the steepest yield curve in US history makes it a rather attractive bet considering thehuge real yields


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What this means is that reserves will be switched out of less liquid instruments and intotreasuries.

Just look what is happening to Bank Reserves at the Fed (chart below). Thats close on $1trnof reserves now, as all sorts of crap ends up at the Fed. The Fed and the banks aredesperate to turn that crap into liquid instruments.

The banks will be huge ongoing buyers of government securities as time goes on (especiallywith real yields where they are). I also fully expect the law to be changed to encourage banks

to hold even more treasuries. This is how it works in Japan.


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Pension funds buyers by law (via a bailout)

The second change that will likely happen is to the pensions system. The pensions timebomb is exploding. The liabilities of under-funded pensions may well run into the trillions. We

just dont know.

In Japan and Switzerland the Governments had to underwrite the pension systems at roughlythe 10-year bond rate. That meant that the pension system ended up being effectively forcedto buy 10-year bonds and longer-dated maturities. The demand has been enormous.

In Japan it allowed the Government to run up huge debts to manage its deflation. This willcertainly be on the US Governments screens.

Domestic debts are much better than foreign debts.

Pension holders are so underwater its terrifying

Just to demonstrate clearly how great a problem pension funds have, I have included thechart below of the real returns on the SPX with a 14-year moving average on it.

Why fourteen years? Well I am taking the recent low in the market, which was the sameinflation-adjusted price as in 1995. Anyone who started to invest from 1995 onwards on amonthly basis (as most pension inflows are done) is now underwater by 43%!

Do you understand what I am telling you?They have 43% less in their pensions than they putin, in real terms. That is totally mind-blowing.


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The idiotic 70:30 asset allocation is a thing of the past

Part of the fault lies with the ridiculous idea the 70:30 equities versus bonds is a goodallocation. It is gross stupidity and irresponsibility.

Lets assume however that pensions have cushioned themselves a little in bonds. (Althoughthey got smoked in CDOs etc trying to make bonds have equity-like returns. They did haveequity-like returns they lost money!) Even so, it is still an unreal loss that the system isfacing.

If youve been paying in to your pension for 30 years youve broken even. Hurrah!

If you have been paying into your pension for 20 years you are still underwater by thismeasure. Only those of you who have been paying in for 30 years have actually made anymoney, and the amount you have made is miniscule.

Mutual fund managers belong in jail

Just look at the chart of mutual fund cash positions. Fund managers have been taking moreand more risk to try to make returns. They have lost more money over this period of time thanever before. It is incredible. Simply unforgiveable.

Previous major bear markets saw cash positions well above 10%. Fund managers now aretaking extreme risks considering the economic mess we are in.

It is irresponsible but hey, its other peoples money I expect them to be forced to changeand hold more cash. This destruction of wealth cannot go on.


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Pension funds will be assigned to history

Pension funds are going to be a thing of the past. They were effectively invented by Baby-Boomers who wanted to save money for retirement, but didnt want to save as much as theirparents did. They thought that capital gains from stock markets would do it. Wrong!

The only way to safely save money is by saving money. It aint friggin rocket science

Households savers will buy bonds

That brings me on to my next buyer of bonds that is households. Household savings aregoing up fast and will go up much, much further. Those savings will get recycled into the bondmarket.

I think that savings will not only revert to their pre-1990s average of 9.1%, but need to go upto 12% plus to allow Boomers to retire. Thats another whole load of bonds that will bebought

In summary we are on a path to deflation and not inflation

So there we have it. I cant explain my rationale any clearer. Regardless of what the marketthinks, the US is on a massively deflationary path.


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Real Rates are in huge danger of accelerating deflation and choking off any growth. The Fedis not doing enough to offset this. The Taylor rule by many peoples reckoning, suggests thatFed funds need to be at -5%. $300bn of quant easing is just a piss in the ocean to offset this.

The final chart on this subject is the real Fed Funds rate below. We are currently near 1%.That is pretty much the average Fed funds rate over the last 20 years. It is neutral. A neutral,real Fed funds rate is not in any waysuitable for the worst economic crisis since the 1970sand the worst financial crisis since the 1930s. It is way too tight as the Taylor rule suggests.

However, if we do get to see -2% CPI over the summer, real rates will shoot up to 3%. 3%real Fed funds preceded the 1990 recession, the 2001 recession and the 2007 recession.

Just bear this all in mind when you start jumping up and down about selling the US Dollar and

shorting treasuries.

If treasuries dont start to rally from here we are fucked. There is simply no other way to say it.

To that end, I wish to add to my already huge bond positions. I want to buy a September callspread on 10-year futures. If I get this right I will make 5.6 times my money. See TradeRecommendations for details.


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Timing bondsWhy the hurry and the conviction that the timing is right now?Well finally we got the weekly 9Demark signal on 10-year yields with hugely overbought stochastics, which are crossingdown.

On the daily Demark charts we have got a 9 and a 13, and we are three days from a secondthirteen-top. The stochastics are also at the top of their range and are hooking back down


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It looks like a perfect opportunity. This view on bonds is also supported by the chart ofUS 2-Yr notes, which look as though they are about to suffer a horrific break lower

Important note to family offices or pension funds

If you are an income seeker such as a family office or a pension fund, I beg you to think aboutbuying and holding treasuries to at least partially cover your income needs here. For you it isnot a trade for capital gains, but an absolute imperative for yield. You can then build aroundthat position with other yielding instruments, but you wont get this chance again

Income is much more important that capital gains when you have fixed liabilities. It is veryimportant that you understand this.

Equities

In GMI May 2009 MonthlyI listed three provisions that I needed to see met before I threw inthe towel on my positions. Over the last month equities have gone nowhere and my threeprovisions are intact.

I would not like to see this rally in equities extending beyond 12 weeks, although I

do understand that it may well mess around a bit at the top before finally breakinglower.

I would not like the market to trade above the January 6th

high of 945.

I also do not wish that the VIX index breaks its downward sloping wedge


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The major risk is still to new lows

I still think the major risk is a move lower, in fact to new lows. This view is encapsulated in thefollowing couple of charts.

First up the Chart of Doom, which has not really done anything wrong yet

Second up is the chart of 1930 - 1931, where we saw a very similar bounce with renewedeconomic optimism the parallel is very good.


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Out of interest, the chart of NYSE Volume also almost exactly mirrors the same periodhmmm

This would be a ludicrously short secular bear market

Another point that I want to raise is that this would be a very strange crash indeed if we foundthe bottom here. From peak to trough the SPX, during the worse financial crisis seen sincethe 1930s, has so far fallen for a total of sixteen months.

If we compare this to the NDX in 2000 to 2002 it fell for 30 months.

If we compare it to the Nikkei from 1990 to 1992 it fell for 31 months.

If we compare it to the Dow from 1929 to 1932 it fell for 34 months.

I would therefore imagine that a fall of 30 months or so would be much more fitting for theworlds worst export collapse outside of war in over 100 years, the worlds second worstfinancial crisis in 100 years, the second worst GDP contraction QoQ since WWII in the westand the worst GDP contraction in Asia since the war.

If the economy and stocks were to bottom here, it would be very odd indeed.


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Technicals are now all in place

Just to remind you, we are right at the danger point for stocks. We have been given theweekly Demark signal with the corresponding cross at extremely overbought levels onstochastics.

If the downside is coming, it is very likely to be happening from this week onwards. Letssee

World Growth could be hooking back down

How can you be short equities when the world is about to start growing?

Well, are you sure this growth is not a two-month wonder? Many things are rolling over fromChinese Exports to Russian IP, from US Durable Good Orders to Retail Sales.

These things should not be hooking back down Retail Sales in the US (overleaf) are nearlyback to the low


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Durable Goods hooked back down too


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Chinese Exports went back down still nobody is buying anything

Russian IP collapsed to new lows


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Parallels with 2001/2002

There are examples of this everywhere. As I have said before, it reminds me a lot of thebounce into March 2002 when we hit a false dawn and things rolled over. The data is now notuniversally strong and key components are rolling back over.

Be very, very careful and use my framework above to decide when you need to change tack,if at all. I still think this has been nothing more than a horrific bear market rally.

The Dollar

Like bonds, many people have very strongly opposing views on the Dollar. Most people andnewspaper pundits are convinced that the Dollar is toilet paper due to the excessive issuanceof debt.

Hopefully, for once and for all I have justproven that at the moment this line of thinking is totalnonsense, as there is no excess issuance of debt and that the rate of debt growth is falling and actually risks going negative should we get another round of risk reduction. This is bullishfor the Dollar.

Simply put: less debt = less Dollars in circulation = Dollar rally.

It is not that complicated now, is it?

The charts to back up the view

Let me walk you through the charts to show where we are in this Dollar rally.

Firstly, looking at the long-term chart of the Dollar we can see it has been forming a fallingwedge (overleaf). These are usually major reversal patterns and are patterns that I take veryseriously.

The next move in this chart should be for the Dollar to move back to 100.


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If we look at the more detailed weekly chart, you can see that we have made a 5-waveadvance from the low. The move we have seen since March is a corrective A-B-C pattern,where we are currently searching for the low.


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The Yen

It is not yet 100% clear, but I also think that the highs of the JPY are in and that the next

major move will be the Yen to go to 115 versus the USD.

Its early days yet so we could get more backing and filling, but with Japan being the worldsgreatest exporting nation they need a weaker Yen to survive

Sterling

Sterling is another currency that is starting to get my attention. I get the feeling that this Wave4 bounce versus the USD is almost done and we could see another collapse in due course.

The Pound is still too strong and the UK remains one of the most expensive places on earth.That doesnt match up with its fundamentals in any way.

Overleaf is the chart of Sterling versus the USD


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Demark, RSI and stochastics are pointing to a very overbought market and the chance of theturn coming soon is very high

I want to add a position of shorting the GBP versus the USD.


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Euro/GBP

Also I have been short the Euro versus GBP in recent months, suggesting that the selling inthe Pound is overdone. Take a look at the chart. It has formed a giant wedge. That makes mevery nervous of the Pound collapsing. I want to book my profits.

India

There is one bright light in the world as far as I see it, and that is India. I happen to be shortand have been killed however but on to that in a minute.

There is only one major country where massive excess capacity is not a problem and that isIndia. You simply cannot tar India with Chinas brush. Indias development has only juststarted, as in general it remains very third world. No Indian city is like any in China. There areno excess homes or excess offices. There is no new massive road and rail network, huge andnumerous power plants or water plant projects, or any of the other things that China is famousfor. Water, sewage, housing, electricity and offices remain resolutely in ruin, but things arechanging and this Government is the best chance India has of getting it right. On the otherhand they really need to sort out their tax revenue collection to allow the Government to freeitself of its huge deficits. None of this is a quick fix, but it will probably get fixed over time.


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Thus the upside for India remains, and Id put any money that it outgrows China in the decadeto come. I think investors will catch on to this in due course. However, India will not break freewhilst the world is in a mess, so I dont expect the markets to keep climbing. I expect them tocorrect when other markets fall to new lows but the low is probably in for India stocks(although its a bit early to say this with any certainty).

India reminds me of China in the early 1990s. All the opportunity is to come. I just think its alittle early to suggest that the point has come to be long. I will remain short but only to look fora chance to repair my P&L a bit; I might even be able to get out for flat once the post-electioneuphoria dies down and the global realities bite again.

Trade Recommendations

Buy Sept 2009 US 10-Yr Futures 122/125 Call Spread for 26 Ticks.

Sell the GBP versus the USD

Buy to Close Euro versus GBP Profit YTD 9.56%

See Introduction for details.


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The Business Cycle

Well the bounce in the ISM continues

However, Im just not sure its not a head fake bounce that we have seen many times inprevious recessions. You can see the last one in 2001/2002 on the chart above.

If we look at our long-term ISM, you can see that we really didnt get to levels seen inprevious super-recessions


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However there is a major complication with predicting new lows this year for ISM. We knowthat the S&P500 YoY exactly follows ISM. See chart

And we can calculate that we HAVE to see the SPX get down to 650 by September for theISM to match its previous low, and for the SPX to get to 500 by September for ISM to get tothe usual super-recession lows.

Essentially its all about the SPX breaking or holding the low of -48% YoY.

That is a tough call. The reason being is that the SPX fell out of bed last year in October andthat makes the YoY comps very tough indeed.

Let me run you through a few more charts.


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SPX at 920 by year-end

If the SPX stays here until year-end, the ISM will go to 54. That would signify expansion andwould fall into our Japan-scenario possibility.

SPX at 1100 by year end (!!)

If we go for some of the wild S&P forecasts of 1100 by year-end (courtesy of BlackRock), this

would suggest a very, very ridiculous forecast of the ISM at 60, which would be the fastestand greatest up-cycle in the history of the financial markets. Where do people get this shit??


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SPX at 400 by year end (!)

If by year-end we wanted to see the ISM lower, we would need to see the SPX at 400 byyear-end. That would be a 56% fall on the SPX over the next seven months. That wouldequate to a bigger fall that we saw over the similar period of 1931 to 1932. Its a little far-fetched.

SPX at 500 by September

Therefore for the ISM to make new lows, we have to see a sharp fall over the next sixmonths. My favourite choice would be 500 by the end of September. That would be a 45% falland almost exactly equates to the 1931/32 period.


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So, these charts give us a reality check. It doesnt however help us choose between a Japan-style short and muted recovery (with further falls ahead) versus the 1931/32 scenario offurther sharp falls of 45% followed by another 35% bounce into year-end, and then fresh fallsinto 2010. Tricky

Many people are looking at the Inventory to Orders component of ISM, which suggests thatISM will explode. But this also has a history of bad signals, the most notable being the parallelperiod of 2001/2002 when it gave a huge false signal and ISM soon collapsed back to newlows.

You can see this 2001/2 false dawn even more clearly when we look at the SPX YoY chartversus the Inventory to New Orders ratio of ISM

Its far from clear that inventories are going to be restocked. Businesses just dont have theconfidence to do that yet. They are still on the back foot. It would be irresponsible to buildinventories now especially considering the GM bankruptcy Retails Sales (overleaf) wouldalso discourage anyone from getting too excited


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Meanwhile, Unemployment is still following Credit Spreads


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Auto Sales are still suggesting ISM has further to fall. It suggests that ISM is going down tonew lows, matching my 500 by September possibility for the SPX.

Real Personal Consumption hooked up but is falling again. This false dawn is rather commonand I expect it to take out the 1974 lows in the months ahead.


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One of the most heralded pieces of economic data recently was the Consumer Confidencenumber. However, this data has a long history of false dawns and fake signals

Housing is getting close to bottoming. This doesnt mean house prices are going to rise, itmeans that housing turnover is not going to get any worse. Its actually difficult for it to get anyworse!


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However, over in Australia the Teflon-coated housing market looks like its about to comeunstuck finally.

As I explained in the Introduction, the rest of the worlds data this month has been much moremixed than the previous two months, with many indicators hooking back down as per myexpectations. I expect this trend to continue into September or October, after which year-on-year comparisons will be extremely favourable.

To me it all sounds like an October low for the economy and stocks, which should then befollowed by a muted economic recovery into early- to mid- 2010 and then possibly followed byfresh weakness.


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Charts to make you go Hmmm

Chart 1

US Banks

From cyclical to secular to cyclical again what a round trip. Dont expect these to do

anything else but move up and down in a sideways range at best.


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Chart 2

Xerox

There is no reason to show this chart other than for the fact that equities for the long run quiteoften dont make sense


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Chart 3

Gold

Whilst almost all of us can see the benefits of owning gold in these times, we need to becareful that this doesnt prove to be a re-run of the Ags trade or oil, where everyone with asecular view was wiped out you need to be ready to get out when gold fever strikes.

Gold in inflation-adjusted terms simply isnt cheap versus anytime in history, except for TheGreat Inflation this chart goes back to 1859.

Im not saying the great gold bull market is finished yet, but we have to be careful and

understand the risks.


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Chart 4

Oil

To show you what I mean about gold, I thought it would be useful to show you the chart of oil,inflation-adjusted. From the chart it looks like the secular bull market has finished. It would beastonishing indeed for oil to break to new highs, inflation-adjusted.

What it shows is that in inflation-adjusted terms, asset prices do not trend higher forever.


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Chart 5

Agricultural Commodities

Ag Commodities have not had their secular rise. I still firmly believe that it is coming but notfor a while longer

Here is the chart of inflation-adjusted corn

And the chart of the stunningly cheap the worlds cheapest asset lumber


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Chart 7

Nat Gas

Another monthly 9-bottom weve just seen a brutal 78% fall. Im not sure we can build a bullmarket, but prices might stop falling


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Chart 8Platinum and PalladiumBoth these metals look very much as if they are coming near the end of their Wave 4consolidation (like many other things), and could fall to new lows in the coming months

Platinum

Palladium


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Chart 9

Asian Currencies

Yet another weekly 9-top can be seen in the ADXY. Hopefully this paves the way for renewedDollar strength


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Chart 10

Australian 2-Year Rates

If the Australian housing market is going to roll over properly, then Aussie 2-year rates are atthe wrong price. There is a weekly 9 on them (another one!). Expect new lows


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Chart 11Eastern European CurrenciesThese have all had a decent correction but the flag patterns suggest that we could slumpagain to new lows versus the Euro

Here is EUR/HUF

And EUR/PLN


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Positions

FX

Trade Recommendations Entry Price % Since Inception %YTD

Sell EUR vs. GBP Oct 2nd

2008 0.7913 -10.51% 9.56%

USD vs. Euro Jan 13th

2009 0.759 -6.95% -6.95%

USD vs. AUD Jan 13th

2009 1.5017 -16.91% -16.91%

USD vs. ZAR Jan 13th

2009 10.00566 -20.77% -20.77%

USD vs. CNY (1-yr forward) Jan 13th

2009 6.8341 -3.73% -3.73%

DXY Feb 4th

2009 85.82 -1.48% -1.48%

Sell JPY vs. USD Mar 31st 2009 0.0101015 1.00% 1.00%

Closed Out Trades 2009 Closing Date % Since Inception %YTDNone

Fixed Income

Trade Recommendations Entry Price Returns sinceInception Returns YTD

Short UK 30-yr yields Oct 31st

2008 4.516% +4bps+2.64% -86bps+ 1.96%

Short UK 10-yr yields Sept 30th

2005 4.28% +53bps+15.70% -73bps+1.79%

Short US 30-yr bond yields Oct 31st

2008 4.37% +3bps+2.53% -167bps+1.91%

Short US 10-yr bond yields Jan 31st

2005 4.14% +68bps+17.97% -141bps+1.73%

Short US 5-yr bond yields Mar 17th

2006 4.62% +228bps+14.66% -80bps+1.94%

Short US 2-yr bond yields Feb 4th

2009 0.98% +7bps+0.33% +7bps+0.33%

Short DE 5-yr bunds yields Sept 30th

2008 3.48% +85bps+2.32% -32bps+1.45%

Short DE 10-yr bunds yields Oct 2nd

2008 4% +34bps+2.62% -64bps+1.64%

Short DE 30-yr bunds yields Oct 31st

2008 4.439% +8bps+2.59% -83bps+1.85%

Closed Out Trades 2009 Closing Date % Since Inception %YTDNone


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Commodities

Trade Recommendations Entry Price

% Since

Inception %YTD

Gold Feb 17th

2009 941.95 4.07% 4.07%

Gold in HUF Feb 17th

2009 223,496.48 -11.98% -11.98%

Gold in ZAR Feb 17th

2009 9,398.31 -17.31% -17.31%

Gold in KRW Feb 17th

2009 1,341,525.19 -8.53% -8.53%

Oil: Z9 Vs. Z14 Feb 27th

2009 -17.78 69.01% 69.01%

Closed Out Trades 2009 Closing Date% Since

Inception %YTD

Corn March 09* Aug 31st

2006 Jan 13th

2009 -6.28% -6.49%

Wheat March 09* Apr 16th

2008 Jan 13th

2009 -43.57% -6.71%

RL Lumber March 09* Dec 1st 2006 Jan 13th 2009 -64.89% -7.08%

*Rollover value

Equities

Trade Recommendations Entry Price% Since

Inception %YTD

Short BKX Jan 13th

2009 37.42 0.00% 0.00%Short SXIP Jan 13

th2009 140.16 10.94% 10.94%

Short SXEP Jan 13th

2009 278.32 -6.90% -6.90%

Short Nikkei 225 Jan 13th

2009 8413.91 -13.18% -13.18%Short DAX Jan 13

th2009 4719.62 -4.69% -4.69%

Short EEM Jan 13th

2009 23.83 -39.49% -39.49%Short Hang Seng Jan 13

th2009 13668.05 -32.95% -32.95%

Short Shanghai Jan 13th

2009 1863.37 -41.30% -41.30%Short Chinese H-Shares Jan 13

th2009 7080.53 -47.28% -47.28%

Short South African All Share Jan 13th

2009 22183.09 -0.60% -0.60%Short Sensex Jan 13

th2009 9071.36 -61.22% -61.22%

Short Kospi Jan 13th

2009 1167.71 -19.54% -19.54%Short Franklin BEN Jan 13

th2009 59.54 -12.28% -12.28%

Short T Rowe Price TROW Jan 13th

2009 30.76 -31.89% -31.89%Short Blackrock BLK Jan 13

th2009 123.53 -29.12% -29.12%

Short Tiffany TIF Jan 13th

2009 22.06 -28.60% -28.60%

Short Coach COH Jan 13th 2009 17.26 -52.20% -52.20%Short PPR Jan 13

th2009 45.64 -30.28% -30.28%

Short LVMH Jan 13th

2009 45.46 -29.78% -29.78%Short WMT Feb 4

th2009 46.42 -26.80% -26.80%

VIX Feb 17th

2009 48.66 -34.92% -34.92%

Closed Out Trades 2009 Closing Date% Since

Inception %YTD

Grain Corp Feb 29th

2008 Jan 13th

2009 -55.56% 5.34%

Padiberas Apr 16th

2008 Jan 13th

2009 -43.84% 2.50%

International Paper* Mar 21st

2007 Jan 13th

2009 -67.59% -5.00%

*With dividends


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Background

Raoul Pal has been publishing The Global Macro Investor since

January 2004 to provide original, high quality, quantifiable andeasily readable research for the global macro investmentcommunity. It draws on his considerable experience in running ahedge fund and advising many more.

In its four years of publication the compound returns of therecommended portfolio have been +694% with a 69% averagenumber of winning vs. losing recommendations and zero downyears.

Raoul Pal retired from managing client money at the age of 36 in2004 and now lives on the Valencian coast of Spain.

Previously he co-managed the GLG Global Macro Fund in Londonfor GLG Partners, one of the largest hedge fund groups in theworld.

Raoul moved to GLG from Goldman Sachs where he co-managed

the hedge fund sales business in Equities and Equity Derivativesin Europe. In this role Raoul established strong relationships withmany of the worlds pre-eminent hedge funds learning from theirstyles and experiences.

Other stop-off points on the way were NatWest Markets andHSBC, although he began his career by training traders intechnical analysis.

Should you wish to receive information about membership please email us at

[email protected]. The number of members is STRICTLYlimited, with only a few free spaces coming up each year, as the membershipis full. If there are no free spaces available a waiting list will apply.

Do not forward. Subscription cost reflects theexclusivity of the product, and it is in no ones interestto devalue it.

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