This note was originally published at 8am on March 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“It would be impossible, therefore, to introduce into society a greater change and a greater evil than this – the conversion of the law into an instrument of plunder.”
Bastiat wrote that in his treatise on individual liberties titled “The Law” in 1850. If you are in the business of having an open mind and teaching yourself alternative economic frameworks to the Keynesian Kingdom of thought, I highly recommend taking the time to read it.
I certainly don’t agree with everything Bastiat wrote. Nor do I disagree with everything Keynes wrote. What I’ve tasked myself with in writing to you each morning is exploring my interests in markets out loud while maintaining some sense of a moral compass. My Mom inspired me to do that.
Anytime one uses the words “moral” and “interest” together in writing something to Washington/Wall Street, one must tread carefully. When one considers America’s Declaration of Independence and the principles embedded in the Constitution however, one must not contradict our high society’s self-interested group-think with the underpinnings of our citizenry’s morality.
It’s only fitting to ask this question today, because on this day in 1775 an American patriot by the name of Patrick Henry delivered a famous speech in defense of liberty to the Virginia Convention when he proclaimed, “Give me liberty or give me death.”
I’m too self-centered to ask for death over liberty this morning, but I will remind those who are begging for bailouts in order to get themselves paid that this country’s new Transparency & Accountability Tools (YouTube, Twitter, etc.) will most likely smoke you out of your hole of contradiction.
If only because he was born early enough to say it first, Bastiat nailed this fundamental point down early in “The Law” when he wrote:
“When the law and morality are in contradiction to each other, the citizen finds himself in the cruel alternative of either losing his moral sense, or of losing his respect for the law.” (Bastiat, “The Law”, page 7)
When I think about that quote and the timing of revolutionary event risk in this world, I just can’t stop thinking. I do not profess to have the answers to all of this, but I can definitely tell these Government People what not to do. Stop compromising the “fairness” and “free-ness” of market systems by making new laws that implicitly choose winners and losers.
Back to the grind…
As always, this morning’s Global Macro news-flow is multi-factor and multi-duration. In summary, I think the points I am about to rattle off speak pointedly to the Instruments of Plunder being used by Big Government Interventionists who fundamentally believe issuing Fiat Fool paper is the best path to prosperity:
- USA: The US Dollar Index continues to hit fresh YTD lows – down again for the week-to-date, and down for 10 of the last 13 weeks
- JAPAN: Japan announced that the damage is going to cost at least 25 TRILLION Yen – 25,000,000,000,000 – that’s a lot of Yens
- EUROPE: Portugal’s government is on the brink as Eurostat questions the credibility of their numbers and Portugal’s PM may resign
Of course, there is both causality and correlation being imputed into market prices on these factors across durations:
- USA: The bond market smells The Bernank considering QG3 (Treasuries up) and the stock market sees GDP Growth Slowing
- JAPAN: The stock market failed to overcome our immediate-term TRADE line of resistance (9,719), closing down -1.7% overnight
- EUROPE: British bonds continue to be the recipient of sobriety (implementing austerity with credibility) while Portugal earns a P for PIG
Then you have countries with pseudo-conservative fiscal and monetary policy getting less confident in US, Japanese, and European stock markets as Price Volatility ramps (so they invest more at home):
- CHINA: Continues to see capital pour into the Chinese Yuan (making new highs at 6.55) and flow-through to Chinese stocks (we’re long CAF)
- CANADA: Continues to benefit from low-geopolitical risks and high resource exposures to oil and precious metals (we’re long FXC and GLD)
- NORWAY: Continues to see its stock market trade in the green for the YTD as raising interest rates and long-exposure to Petro-Dollars helps
Finally, you have SP500 and WTI Crude Oil futures whipping around like Pac-Man attempting to absorb all of this and stay ahead of what some Central Planner With Tan Socks at the Fed is going to do next.
What I’m going to do this morning is at least consistent. That usually starts with what I am not going to do – and one of those things is not cheering on Big Government Intervention and using the US Dollar as an Instrument of Plunder. All that does is drive The Inflation and The Price Volatility higher. After seeing the globally interconnected “Black Swans” that were born out of the early 2008 US Dollar destruction, I’ve seen enough of that.
From an asset allocation perspective, this week I’ve sold all of my US Equity exposure (Energy and Healthcare – XLE and XLV), ramped up my allocation to Fixed Income to 9% (bought long term US Treasuries yesterday), and have taken my CASH position back up to 55%.
If you are a Central Planner looking to protect the liberties and properties of The People, Bastiat said “it is absolutely necessary that this question of legal plunder should be determined, and there are only three solutions of it:”
- When the few plunder the many.
- When everybody plunders everybody else.
- When nobody plunders anybody.
My solution remains. For starters, just stop. Stop what you are doing with The Inflation policy to enrich the few. The money isn’t worth it to me.
My immediate-term support and resistance levels for WTI crude oil are now $101.32 and $105.98, respectively. My immediate-term support and resistance levels for the SP500 are 1293 and 1310, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer