This note was originally published at 8am on January 23, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“We must remember that economists are not necessarily the creatures of great thought but of circumstance.”

-John Kenneth Galbraith

As the Overlords of Keynesian Economics descend from their chalets in Davos, Switzerland this week, we must all give thanks and praise. Without doing the exact opposite of their consensus in the last 4 years, who knows what precipice we commoners would have fallen from…

Not surprisingly, Crisis-Mongering has become fashionable on Amazon. Looking at the Top 20 new hard-cover books on policy, economics, and markets, a lot of them are about debt and deficits. After all, what better time to buy Gold than after it’s gone up for 11 straight years? Right? Right.

This weekend I started reading “That Used To Be Us” by the New York Times’ Thomas Friedman and his buddy professor from John’s Hopkins University, Michael Mandelbaum. Sorry guys, but this is about as consensus as consensus gets.

The book’s preface, like most Big Government Interventionist ideas that start using the rear-view mirror, assumes the position of elephantine intellects who have found the elixir of American optimism. In reality, they are just one small part of the larger problem.

“We now live and work in the nation’s capital, where we have seen first-hand the government’s failure to come to terms with the major challenges the country faces.” –Thomas L. Friedman and Michael Mandelbaum, Bethesda, Maryland, June 2011

Really? Thanks guys. I’ve seen it first-hand without living in the nation’s capital! Telling me about your personal inconveniences commuting from Bethesda, Maryland to the epicenter of Keynesian Experimentations Failed is a much larger problem of pretense than the one you individually have to stare at each and every morning in the mirror.

We need less people with opinions born out of Washington groupthink; less Crisis-Mongering; and less commuting to get paid by DC. That’s the change I can believe in. Please, for the sake of all of us, just get out of the way.

Back to the Global Macro Grind

Getting out of the market’s way has proven to be a great strategy for both the US and German government. While the Germans have been more explicit about their distaste for bank bailouts, American central planners haven’t been able to do much for the last 3 months. Evidently, doing nothing works.

Doing nothing probably won’t get American booksellers paid, but it’s getting the commoners paid:

  1. Chinese, German, and American stock markets are at 3 month highs
  2. Counter-party global banking risks (Euribor/OIS Spread, TED Spread, Yield Spread, etc.) are all at their best levels in 3 months
  3. US Growth, Employment, and Confidence readings are hitting 3-month highs

So what can they do to screw this all up this week?

  1. State of the Union or Republican Debate #26 (Monday-Tuesday)?
  2. The US Federal Reserve’s Open Market Committee meeting/decision (Wednesday)?
  3. Davos, Switzerland Meeting of the Crisis-Mongering minds (all week)?

What screwed this up around this time last year?

  1. Policies to Inflate brought us $120/oil by Q211
  2. Growth Slowing became reality as inflation accelerated and debt levels compounded
  3. Employment and Confidence followed to the downside

Got Reflexivity?

After seeing Global Growth slow in both 2008 and 2011, we really, really, do not want to go there again. Markets love the idea of getting Government out of the way. This is the first January since 2003 that the US Treasury market has sold off like this.

Nine years ago (2003) is a critical reference point because that came after 3 consecutive down years for US stocks (2000, 2001, and 2002), a terrorist attack on US soil, and fear-mongering from Congress like we had never seen.

Why are US Treasuries selling off as US Equity Volatility crashes (VIX down -22% YTD) and US Stocks refuse to stop going up? Because Growth Expectations are starting to recover from Crisis-Mongering lows.

Giants vs Patriots – it’s time for us all to cheer for the progressive message in this country that’s always been Red, White, and Blue.

My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, and the SP500 are now $1646-1676, $109.12-111.92, $1.26-1.30, $80.01-80.86, and 1297-1320, respectively.

Best of luck out there this week,

KM

Keith R. McCullough
Chief Executive Officer

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