This note was originally published at 8am on July 06, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“I have often, this past decade, wished that there was a formal and well-established discipline called macro-consumer.”
That quote is from the author of a book that one of our sharpest Global Macro clients sent me recently titled “We Are Like That Only – Understanding The Logic of Consumer India.” That’s what I’m reading this week. It’s an excellent perspective on the real-time global economy.
What is the real-time Global Macro economy? Is it different than the traditional Bachelor of Arts view of the US economy? What is Keynesian economics? And what, if anything, have central planners of Fiat Fool Kingdoms learned about how their short-term decisions impact currencies, commodities, and the Macro Consumer since Rama Bijapurkar made the aforementioned wish in 2007?
These are critical questions concerning both Global Macro-Economic Context and Causality. Instead of a few days of vacation, I could probably take off for a few years and write a book of my own considering the answers. Unfortunately, I don’t have the time to do that, yet.
What I do have time for this morning is throwing some of these questions right back to President Obama. Today, Obama’s economic group-thinkers are going to be huddled in the conference room fielding questions in a wanna be “town hall” on Twitter @ #AskObama. So if you want to know if he calls Geithner his pet Squirrel Hunter in Chief, here’s your chance.
Back to the Global Macro Grind…
- Global Equity markets like Deflating The Inflation (China, Germany, and USA all holding TREND line support)
- The Macro Consumer likes Deflating The Inflation (MBA mortgage applications UP finally this week, +4.8% w/w in the US)
- If President Obama wants to Deflate The Inflation, he’s going to have to do a lot more than tap the SPR
He’s going to have to get out of the way.
A lot of people whine that critics of US Congress “don’t have a solution.” That’s a crock. There is a very simple solution to this Macro Consumer mess:
A) Strengthen the US Dollar with a credibility bid to get government out of the business of trying to make things happen
B) Then just let it ride
Ride on the back of the biggest Global Macro Consumption Engine created in the history of mankind – the American Consumer… ride Cowboy Obama, ride!
Tapping the SPR only taps on peoples’ nerves that Big Government Intervention is here to stay. Getting someone like Stan Druckenmiller or Michael Bloomberg to run the US Treasury instead of The Squirrely One would have the opposite effect. The last thing Americans want is Geithner’s smug smirk whispering about the 14th Amendment powers of The President. What they want is change.
Change starts with stopping what isn’t working. Change in Global Macro markets is marked-to-market - not to some cochamamy Keynesian concept that’s attempting not to die in a Princeton textbook.
Just look at what Deflating The Inflation (a 21% peak-to-trough decline in oil prices from late April to the end of June) has done for Global Equities and Global Consumption. It stopped both from going down!
The last 48 hours of Global Macro data has been percolating on this score - and bullishly so:
- German Service PMI for the month of June was up sequentially to 56.7 versus 56.1 in May
- India’s Services PMI for the month of June was up sequentially to 56.1 versus 55.0 in May
- Indonesia’s Consumer Confidence for the month of June was up sequentially to 91.8 versus 90.6 in May
But, again, these are June numbers – and in June, the US Dollar arrested its decline and oil prices were falling. Today is July the 6th, and it’s not clear, yet, if there is a political spine to strengthen the US Dollar sustainably. The Chinese raising interest rates one last time should help.
We shorted oil for the first time in a long time yesterday in the Hedgeye Portfolio. So that means there is an interconnected chance here folks. There really is a chance that the US Dollar Index continues to make a series of higher-lows and busts a bigger move to the upside in the coming months.
If that happens, you will see:
- A continued selloff in Oil’s price down to its long-term TAIL of support ($90.51/barrel, or -7% downside from here)
- A continued short squeeze in Global Equities from China to Indiana
- A continued deleveraging of the Global Hedge Fund community’s carry trading of Geithner’s Down Dollar policies
“We are like that only” in America, Canada, and Germany too. We like to buy gas and food when they are on sale.
My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1490-1526, $90.51-97.11, and 1315-1350, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer