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This note was originally published at 8am this morning, November 11, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“This country’s out of money and we better start thinking.”

-Erskin Bowles

Erskine Bowles is a Democrat. He was Bill Clinton’s Chief of Staff the last time this country ran a budget surplus. Now he’s President of the University of North Carolina and Co-Chair of President Obama’s Debt and Deficit Commission.

If you already haven’t, google ‘Bowles Pelosi’ this morning and you’ll see why professional US politicians are tee’ing up America’s balance sheet to implode. The good news is that this isn’t “new” news. Those who aren’t paid to be willfully blind get it at this point. The American political machine has crossed its proverbial Rubicon.

This is going to be critical news for the next few weeks because yesterday afternoon Messrs Bowles and Alan Simpson (former Republican Senator from Wyoming), released a “draft” of their debt and deficit report that’s due out on December 1st.

Commenting on the draft, compare and contrast these views:

  1. “Without tough choices, we’re on the most predictable path toward an economic crisis that I can imagine.” –Erskine Bowles
  2. This is “simply unacceptable” –Nancy Pelosi

Then consider the PR guy’s take from Stan Collender (former Democrat budget analyst): “Mathematically, it apparently works… Politically, it is going to have a lot of trouble getting support from more than just the two co-chairs.”

Finally, here’s President Obama’s take: “So before anybody starts shooting down proposals, I think we need to listen, we need to gather up all the facts.”

 

Positioning:

  1. Bowles is calling it like it is.
  2. Pelosi doesn’t know what it is.
  3. PR guy knows what math is.

Question: Does the President of the United States have the leadership to listen, hear, and execute on the toughest fiscal decision of the century?

Ironically enough, as the Debt and Deficit Commission’s draft was being released, I was sitting in Peter Orszag’s office at Princeton University. Orszag, of course, just left Obama’s team after running the OMB (Office of Management and Budget). He’s done the math too.

We’ll send a research report out to our clients later on today that goes through the details of Hedgeye’s discussion with Peter, but the overall takeaway is that he not only agrees with our (and Reinhart & Rogoff’s) conclusions about structural debts and deficits, but he agreed that we’ll likely need another economic crisis in order to rid ourselves of this unbearable political polarization.

Now, to be clear, Orszag introduced and effectively utilized the word “polarization.” At Hedgeye we use words like: fiat, conflicted, compromised, fools, risk, charlatan, dogma, etc… but it’s all one and the same thing. And guess what Washington people? Americans have a Ph.D. in their gut on this too.

This morning Bloomberg released a poll (which I’ll editorialize) that confirmed most of what the objective mind in you has already internalized:

  1. 75% of people think Quantitative Guessing (QG) will be “ineffective”
  2. 60% of people (down from 71%) trust Bernanke at the wheel
  3. 44% of people trust Geithner has a clue on economic matters

Now at least Geithner is on the record admitting that he “isn’t an economist.” So when you read his quotes from the G20 this morning suggesting that the debauching of the Dollar has nothing to do with our professional politicians burning it at the stake, take his word for it – he doesn’t do interconnectedness.

Back to Orszag, Bowles, and the American leaders who remain brave enough to stand up against the tyranny of a compromised Congress…

Fellow citizens, it’s time. On this Veteran’s Day we need to ask ourselves if the time to rid this country of Pretended Patriotism isn’t now, when will it be?

As Peter Orszag stated plainly, the clock has been ticking. Any independent analyst who isn’t trying to snag a banking bonus or Washington consulting fees gets this. US municipalities and states are already in fiscal crisis – they’ll eventually need to be bailed out too (QE3). But who is going to pay for it? Will America allow Congress to raise the US Debt Ceiling in 2011? If America can’t issue debt at these artificially low rates, what happens next?

Maybe Mr. Macro Market is already giving us a preview of the answer – US Dollar UP, and US Treasury Yields UP. This is new as of the last week. We’re seeing immediate term breakouts in both. The Buck won’t Burn forever – particularly if we find a President who gets that this debt and deficit buck stops with him.

My immediate term support and resistance levels for the SP500 are now 1206 and 1239, respectively. I covered some short positions on yesterday’s opening market weakness and now have 10 LONG versus 11 SHORT positions in the Hedgeye Portfolio. I remain short the Euro (FXE) and long the US Dollar (UUP).

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

No Money, Need Crisis - 1