This note was originally published at 8am on December 15, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Socialism told us that we had been looking for improvement in the wrong direction.”
I’ve been writing about this from my gut since I started the firm in 2008, but I think it’s worth stating plainly again this morning because it’s the one solution to this mess of economic common sense that we have not yet tried – stop what we are doing.
That’s it. Instead of do more, spend more, centrally plan more. Just stop.
As we have learned since 2007, central plans can only suspend economic gravity for short periods of time. In the long-run, we all have to find a way to let free market capitalism live. The best way to ensure that is to let market prices clear.
Hayek’s views are often ignored and/or misrepresented primarily because the entire Western system of economics education is founded on the idea that Big Government Intervention can “smooth” the business and price cycle.
How’s that smoothing mechanism treating everyone?
I don’t wake up every morning looking to whine. I want to win. Like many immigrants, that’s what I came to America to do. I’m Looking For Improvement in markets every day.
I’m looking to invest in a Strong Dollar. I’m looking for someone in this country’s political leadership to embrace the long-standing economic fact that a Strong Currency empowers not only a nation’s purchasing power, but the confidence of its People.
Taking a step back – and I mean going all the way back to the arenas of meritocracy that hosted the great debates of the Roman Empire (pre 49BC) – this is all we want. We want to be able to have an idea in this country and compete with the broken ideas of the status quo.
If we lose, we can deal with that. If we win, we can change the world. As the great American hockey Coach, Herb Brooks, said, “Again!” – stop what we are doing so that we can all start over.
Back to the Global Macro Grind…
US Consumer Confidence is rising as the US stock market is falling.
Yes, while this may shock people who are in the business of seeing stocks go up, the other 80-90% of us get paid when the price at the pump goes down. At Hedgeye, since our Q211 Global Macro Themes call, we’ve coined this commoner’s phenomenon “Deflating the Inflation.”
Metaphorically, maybe this is why Hayek’s economic perspective resonates with so many people. When “Hayek disembarked at the passenger liner quay on Manhattan’s West Side in March 1923 with just twenty-five dollars in his pocket… he decided to take a job until Jenks returned, and was offered one washing dishes in a Sixth Avenue restaurant…” (Keynes Hayek, page 27)
While he didn’t make his name in dishwashing, this does remind readers what it takes to make it in this world. On Saturday mornings in the 1980s, after my Dad got off the nightshift at the fire-hall, we’d literally scrub the local GM Auto Body shop’s floor with de-greaser, clean the toilets, and sweep the floors.
And liked it…
I mean that with all sincerity. There was an innocence maybe, but also a recognition of reality. That job put more money in our pockets than we’d have had if we didn’t do it. That job, when completed, also gave me a personal sense of accomplishment and responsibility.
This is the real-world folks. And it’s time we start liking that American idea again too.
“In May 1924... Hayek set sail back across the Atlantic … and would not return to America for another twenty-five years.” (Keynes Hayek, pg 28)
That’s an American academic tragedy. Since Hayek’s English was awful, he had a very hard time communicating with the British academic elite (which instructed the American academic elite on economics).
However, by 1932, after Keynes had blown up most of his capital being long corn, rubber, etc. (you know, the Debauch the Currency, Buy Commodities trade), Hayek was gaining traction.
His argument – all of your central plans since 1928 have not worked. They have perpetuated the inflation and slowed Consumption growth.
His solution – stop what you are doing.
Was 2007 this Canadian-American’s 1928? I hope not. But hope is not a risk management process. And if I really take a step back and see how much money I made being long inflation (2003-2007), I can’t say it made me any more proud than the glimmer of that GM shop floor.
My immediate-term support and resistance ranges for Gold (bought it yesterday), Brent Oil, German DAX, and the SP500 are now $1568-1624, $104.94-108.61, 5593-5831, and 1205-1230, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer