This note was originally published at 8am on January 09, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“It’s about time something good like this happened.”
It’s about time we started seeing a Strong Dollar equate to Stronger US Employment. It’s about time we can be long both the US Dollar and some US stocks. It’s about time that both of these positions started winning at the same time.
It’s Tebow Time!
I just loved watching the quarterbacks of the New Orleans Saints and Denver Broncos (Drew Brees and Tim Tebow) do what they do this weekend (win). It’s the best part about living in this country – it always has been. It’s a place where anyone can accomplish anything, provided that the fields of competition are both fair and free.
Back to the Global Macro Grind…
Last week was awesome. So far, this morning is double-awesome. Why? Because we’re winning. And I have no shame in saying that I absolutely and positively love that too!
Last week’s positioning (long the US Dollar and US Consumption) registered the following score:
- US Dollar Index up another +1.3% week-over-week to $81.25 (a fresh 11 month high)
- US Consumer Discretionary Stocks (XLY) up another +2.6% week-over-week (a fresh 11 month high)
- US Stock Market Volatility (VIX) dropped another -12% week-over-week to 20.63 (a fresh 6 month low)
While I have the pom-poms out, we’re also long Chinese Stocks – and they just had their biggest up move in 3-months overnight, closing +2.9% to 2225 on the Shanghai Composite Index.
It’s About Time!
Can we get confident in something we trust and believe in? Big time. While people on the Old Wall might want to label me like they label just about everything else (on a lag), they’re not going to be able to change me. I can get as confident as any Captain in this game when the momentum is there for the right reasons.
Positive momentum, like winning, is contagious.
Some people in this country want to get paid to win even when they lose. That’s just ridiculous – and Americans will have no more of it. There is no free lunch in this economy. There is a cost to re-build confidence. We call it Deflating The Inflation.
Think about this in terms of where the primary driver of Global Inflation (a debauched US Dollar) has been versus where the US Dollar’s Correlation Risk is starting to go (away). Here are the latest correlations between the USD and the SP500:
- 30-day = +0.11
- 90-day = +0.06
- 3-year = -0.66
In other words, the combined fiscal and monetary policies to inflate via US Dollar DOWN were tested and tried for 3 years – and they did not work. What’s working, as it always has in the long-run, is a Stronger Currency Inspiring Consumption and Confidence.
I’m going to keep beating this American Bronco Drum until it starts losing, because the alternative just puts me in a bad mood. John Maynard Keynes was in a pretty bad mood come 1932. If your economic theories, politics, and personal accounts completely failed, you would be too.
As Nicholas Wapshott explains at the beginning of Chapter 9 in “Keynes Hayek”, come 1932-1933, “for all his phrase making and eloquence urging government to instigate public works to cure unemployment… in the aftermath of ‘A Treatise on Money’, Keynes was suffering for a distinct lack of influence in high places.” (page 123)
Like a bad Coach who preaches a style of play that ultimately results in failure, The People of Britain and America effectively fired Keynes in the early 1930s – and they should have. That’s why Keynes was forced to re-invent himself with a new “theory” – the General Theory (more on how that idea was re-built later).
Back to the now and how to Proactively Prepare our portfolios for tomorrow’s games…
If we build upon this country’s latest economic victories and simply keep the Big Government Interventionists (Geithner and Bernanke) out of the way for another 3 months, we really can see US economic growth re-accelerating from its bottom in Q1 of 2012.
We’ll go through this on our Global Macro Themes conference call on Wednesday (email firstname.lastname@example.org), and that’s where we’ll take the time to show you the Macro Math behind how an arrest of our 1-year old Growth Slowing theme would work. But it’s critical to remind you that this is a US economic scenario that can quickly be unwound by none other than the US Government itself.
In our most bullish US Economic Scenario we can get to +2.2-2.8% US GDP Growth for 2012 (which would put us higher than the Bloomberg consensus of 2.1%). But we, unlike the consensus process that’s broken in generating these consensus estimates, do not make annual forecasts and set them in stone. We change as the probabilities, math, and scenarios of the game do.
With that bullish scenario in mind though, I think we can all raise a glass to the real-time winners in this country (Brees, Tebow, US Dollar, etc). For now at least, It’s About Time!
My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, and the SP500 are now $1592-1643, $111.89-115.21, $1.26-1.29, $80.31-81.32, and 1267-1288, respectively.
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer