“We are scattering the substance that belongs to future generations.”
-Irving Fisher
“In 1908, after the assassination of President McKinley, Fisher was appointed by his successor, Theodore Roosevelt, the youngest President of the United States, to the National Conservation Commission.” (Sylvia Nasar, “Grand Pursuit”, page 164).
Commissions and committees have been around forever. In times of crisis, successful leadership by government committee has rarely worked. Ultimately, a super-sizing of that committee concept isn’t going to work this time around either.
By 1909, Congress refused further funding of the National Conservation Commission. Today, they’d probably try to double or triple down on the idea as long as there were some bridges, roads, and teaching jobs to spinoff from it as “economic growth.”
The problem, of course, is that no matter what the American Keynesians try to do, the world’s economic growth continues to slow. As cyclical Growth Slowing in Asia and European Stagflation becomes more clear, Global Equity markets are becoming more red.
On the heels of last week’s nasty -16.2% year-over-year export slowdown in Singapore, the Monetary Authority of Singapore said: “The world economy and financial system are at their most fragile state since the 2008-2009 global financial crisis.”
Much to Timmy Geithner’s centrally planned chagrin, Singapore is China’s trusted economic advisor. When they say something like this – they mean it – and a man-made US committee isn’t going to be able to slow its implications.
Back to the Global Macro Grind…
This morning’s Top 3 Headlines on my screens are: 1. Super-committee Fails, 2. Spain Elects Center-Right Government and 3. Packers Move to 10-0. So at least there’s one team out there who is still focused on winning instead of whining.
Asian and European stocks continue to crash and the so called “Santa Claus Rally” in US Equities has never looked so rouge. Last week we were offered plenty of warning signs – here were some of the more important Macro callouts:
- US Dollar Index - had another solid week, closing up +1.45%, taking its cumulative gain since May to +6.8%
- US Stocks – SP500, Nasdaq, and Russell2000 down -3.3%, -4.0%, and -3.4% on the week, respectively
- US Equity Volatility (VIX) – up another +6.7% (up +113% since May)
- Commodities (CRB Index) – down another -2.5% (down -14.5% since May)
- Oil – WTIC down -1.6% vs Brent down -5.6% (breaking its TAIL line of $110/barrel support)
- Gold – down -3.5% on the week closing barely above TREND line support of $1722/oz
- Copper – down -1.7% and remains in a Bearish Formation (bearish TRADE, TREND, and TAIL)
- US Treasuries – long-term bonds continued to rally, with 30-year yields falling another -4.5% on the week to 2.99%
- US Yield Spread – continued to compress (another 10bps week-over-week) as growth continued to slow
- TED Spread (3month LIBOR minus 3month Treasuries) – up another 3bps on the week to +49 basis points wide
Those were some of the more obvious leading indicators that a US centric stock market investor may have incorporated into his/her risk management view.
Some of the less obvious week-over-week Global Macro moves were as follows:
- Argentina’s stock market down -8.1% (major funding issues continue)
- France’s CAC40 Index was down another -4.8% (we’re short EWQ)
- Austria’s stock market lost another -7.0% (moving YTD down to -38.1%!)
- India led decliners in Asian Equities, moving back into crash mode at > -20% from YTD peak (down -4.8% wk)
- Hang Seng down another -3.4% and continues to crash from YTD peak (we’re short EWH)
- Natural Gas down -7.7% on the week making YTD lows
- Palladium down -9% week-over-week
- Cocoa down -7.3% week-over-week
Obvious or not to consensus, all of these risk factors are measurable and incorporated into our globally interconnected macro view. It’s a lot of work. And it can be as boring as the day is long – but someone has to be your Risk Manager. Risk never sleeps.
Bottom line from here: Get the US Dollar right, and you’ll get mostly everything else right.
That’s been our call since May, and we’re sticking to it.
Yale economist, Irving Fisher, certainly made his fair share of mistakes – but one of them wasn’t ignoring how mathematical realities could drive inflations and deflations of prices.
He called it the “Money Illusion” – and what he ultimately missed was how much debt could perpetuate price volatility. Hopefully, Future Generations of economists figure out that debt’s impact on economies and market prices are not illusions. They are real-time.
My immediate-term support and resistance ranges for Gold, Brent Oil, CAC40, and the SP500 are now $1, $106.11-110.29, 2911-3135, and 1199-1240, respectively.
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
