Looking For Improvement

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.”

-Friederich Hayek

 

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.

 

Huh?

 

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,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Looking For Improvement - Chart of the Day

 

Looking For Improvement - Virtual Portfolio


Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more