• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

This note was originally published at 8am on July 14, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“If you can’t convince them, confuse them.”

-Harry Truman

On the recommendation of my good American friend whose first daughter was born on the 4thof July, I have embarked on reading what my son Jack called the “heavy book” last night – “Truman”, by David McCullough. Whether you are a Republican or Democrat (or neither), you have to love that quote - purely and professionally political.

After Truman’s 2ndterm as President of the United States, there was a French storyteller by the name of Charles de Gaulle who suckered the French people into believing that a deficit spending and currency devaluation strategy was the best way to national prosperity.

De Gaulle became the 18thPresident of France in 1959 and quickly printed a fresh new fiat currency (issued in January of 1960) that was allegedly going to control ze inflation and spur ze economic growth. Sound familiar?

Of course it does.

Professional politicians have been obfuscating facts about their policies to devalue their currency and inflate asset prices for eons. By the time the French franc was flipped for another fresh new fiat (the Euro) in 1999, De Gaulle’s Fiat Fool money was worth just north of 10% of the “value” embedded in it at prevailing market prices of 1960.

Savvy American politicians introduced this political strategy of “Confusing Them” in the 1970s. Like Bush and Obama, both Nixon and Carter had one thing in common – a modern day Ben Bernanke in Arthur Burns (good ole Art was the last US Federal Reserve Chief to attempt to “monetize” the US Debt, fyi).

So from Truman printing US Dollars to finance war (WWII, Korea), to Charles de Gaulle, Richard Nixon, and back again – what have we learned about money printing being a policy to inflate?

Obviously a lot.

And with this sad and pathetic political reality, like they used to say on my favorite Soap Opera while playing Junior Hockey in Canada, “these are the Days of Our Lives.”

Back to the Global Macro Grind

Yesterday, the US Dollar Index got hammered for a down -1.1% move as Gold was raging to the upside. Meanwhile, La Bernank (changed from The Bernank in the spirit of his 1960s France) got put on the spot by Ron Paul when asked whether “Gold is money”?

Notwithstanding Paul’s marketing challenges in asking concise questions of the Chairman, this one was as simple as simple gets. You can check out La Bernank’s answer to the question on YouTube. Suffice to say, with Gold ripping to a new all-time high in the face of Bernanke Burning The Buck, he didn’t want to tell us he was levered long Gold futures contracts.

Rather than listening to card carrying members of the Keynesian Kingdom attempt to explain what the value of money is, I highly recommend reading Niall Ferguson’s “The Ascent of Money.” Give it 30 years and La Bernank will be remembered by the history of money about as kindly as Arthur Burns has been.

Qu’es ce qui se passe avec Le QG3?

Well, Le Quantitative Guessing Part III caught a bid yesterday as La Bernank opened the door for more of what he’s been doing since becoming the Chairman of the Federal Reserve in 2006 – compromising the credibility of American currency.

After about a 3 hour rally, US stocks got tired of the nonsense and sold off aggressively into the close. Why? The People get it – Le QG1 and Le QG2 = Le Inflation Policy, not La Employment.

Fool me once, fool me twice…

Les Fiat Fools aren’t fooling anyone this week:

  1. Real-time Inflation (CRB Commodities Index) = UP +1.7% for the week to-date
  2. Real-time Stock Market Inflation Returns = DOWN -1.9% for the week to date 

Since Obama, Geithner, and Bernanke can no longer convince markets that Quantitative Guessing is the best path to long-term American prosperity, the only strategy that remains is to attempt to confuse them.

Good luck with that.

My immediate-term support and resistance ranges for Gold, Oil and the SP500 are now $1536-1592, $96.54-100.03, and 1305-1331, respectively.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

Confusing Them - Chart of the Day

Confusing Them - Virtual Portfolio