Locking Horns

“No one in our age was cleverer than Keynes nor made less attempt to conceal it.”

-Roy Harrod

That quote typifies the best thing I can say about John Maynard Keynes – he was a world class storyteller. This characterization provides context at the start of Chapter 7 in Wapshott’s “Keynes Hayek” for what was undoubtedly the closest time in history that Hayek ever came to taking Keynes down (1931).

That’s why Wapshott titles his chapter “Return Fire – Keynes and Hayek Lock Horns, 1931.” This was a unique time in Western Academic History where the “governing ethos at Cambridge was to profit from argument” (page 95).  This was also a very different time than what I’m observing from my office on an Ivy League Campus in New Haven, CT today.

Today, there is no legitimate debate between Hayekian and Keynesian thought at either the Whitehouse or in the hallowed halls of the source code that gets paid by it (the Economics Departments of Harvard, Princeton, Yale, etc.). That’s not new. And that’s just plain sad. America is better than that. In order to Re-think, Re-work, and Re-build, our said leaders have to change this.

Back to the Global Macro Grind

Dominating the debate is what we all wake up thirsting for here at Hedgeye Risk Management. No, that doesn’t mean that we always do – but it provides an excellent compass for us every morning.

Expecting to win is a culture. So is being held accountable for our mistakes.

We’ve been Locking Horns with Keynesiasn, Sell Side Strategists, and Media Pundits for the better part of the last 4 years on the functional matter that is called the purchasing power of a US Dollar.

Yesterday, the US Dollar Index rose another +1.1% to make a new intermediate-term closing high of $80.95 = up +11% since the likes of Bernanke and Geithner have been relegated to basically getting out of the way.

Central planners, meet your new King.

Now a lot of people (and I mean a lot - almost all of Western Keynesian Academia and mostly every “professional economist” in Washington) will quibble with me on the causality of it all.

But to be clear, I don’t want whispering and quibbling – I want to pick a fight.

So today, since I am in a bit of a fired-up mood here in the Haven, I am formally challenging anyone and everyone with a Senatorial title in Central Planning to Lock Horns with me on why a Strong Dollar is not great for Americans?

Strong Dollar = Stronger Employment, Confidence, and Consumption. Period.

You saw that in the US Consumer Discretionary stocks again yesterday with the XLY outperforming the SP500 by another 50 basis points. You saw that in the weekly jobless claims numbers remaining below our critical level of 385,000 resistance. You saw that in the Bloomberg weekly Consumer Comfort Index improving from -47.5 to -44.8 week-over-week.

Keynesians, do you see the impact of your being able to do nothing fiscally and monetarily now?

Surely, they’ll have some political form of a back-slapping session after whatever this morning’s US Employment Report brings. Heck, they were back slapping when they were providing “stimulus” that didn’t work!

What could go wrong from here?

A lot; particularly with both Congress and the Fed coming back from vacation.

The biggest risk from here is that Bernanke and/or Geithner come back into our lives with the broken promise that their next central plan (like the housing forgiveness thing for Bank of America yesterday) is going to provide us with the elixir of a mediocre life.

Recognizing this American Zeitgeist for what it is will either provide President Obama with his greatest opportunity for re-election or it will prove to be his Waterloo.

This isn’t a Republican vs Democrat thing – this is an evolution thing. Both parties have had a bi-partisan agreement on 1 thing for the last decade – Keynesian Economics in their policy making. When The People want that to change, what do you do Sirs?

Let the Locking of The Horns begin.

My immediate-term support and resistance ranges for the Gold, Oil (Brent), EUR/USD, Shanghai Comp, German DAX, and the SP500 are now $1, $111.61-113.96, $1.28-1.30, 2150-2211, 5, and 1, respectively.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

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