Le Greek Deluge

This note was originally published at 8am on February 21, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Apres nous, le deluge.”

-Madame de Pompadour

 

Greece Wins 2nd Bailout.” The Top 3 Most Read articles on Bloomberg this morning are about Greece. Great job by the world’s central planners. They have saved us from themselves, again.

 

Now what?

 

Not to be confused with one of the alleged prostitutes from the ex-Keynesian Chief at the IMF, Dominique Strauss-Kahn’s, “sex ring” this morning, Jeanne Antoinette Poisson (Madame de Pompadour) was big player in the French courts of 1740s France. As Chief Mistress to Louis XV, she had intimate edge on everything political that was going to happen next.

 

Short-term career risk management of conflicted politicians vs. Long-term globally interconnected what? Yes, it’s sad and pathetic to watch, even if that means we get a little short-term stock and commodity price inflation to lather us up somewhere in between.

 

My thoughts on what I call Duration Mismatch between long-term wants versus short-term political needs are not new. Never mind 18th century France or Rome in 49BC, this is 2012 baby. If you’re in the game of chasing short-term performance, you’ve just got to believe!

 

Or do you?

 

As our good ole counter-punching friend Friedrich von Hayek once said about Keynes and his throw-away line about “in the long-run, we are all dead”, “I fear that these believers in the principle of après nous le deluge may get what they have bargained for sooner than they wish.” (Keynes Hayek, page 186)

 

Back to the Global Macro Grind

 

While some of the world’s insider trading, tax evading, and prostitution ringing politicians of the Global Bubble in Keynesian Economics may want you to believe that “this time is different”, we still think that a Rising Price of Oil Slows Global Growth.

 

To be crystal clear, we’re not talking any price of oil. We like to talk about the price that’s being set on the margin. There has never been an oil price with a $100 handle per barrel that didn’t slow growth. Never is a long time.

 

Whether you look at Brent or West Texas crude oil, here’s what prices did last week: 

  1. Brent Oil = +2.0% to $119.58
  2. WTIC Oil = +4.6% to $103.24

Now, to be sure, there are a lot of things going on here like correlations, causalities, and Iranians – all at the same time - but the one thing that’s been consistent since Ben Bernanke’s Policy To Inflate (January 25th) are Inflation Expectations Rising

  1. Brent Oil (since January 25, 2011) = +9.1% (from $109.86/barrel)
  2. WTIC Oil (since January 25, 2011) = +7.6% (from $98.33/barrel) 

While it’s not clear to us why Old Wall Street’s economists and strategists have not yet cut their US GDP Growth forecasts for Q1 and Q2 of 2012 due to rising oil prices, it wasn’t clear to us why they didn’t at this time last year either.

 

Not to remind some of these perma-bull growth forecasters about the score, but last year plenty of them said that the price of oil crossing the Consumption Rubicon wasn’t going to matter. In fact, a lot of them said rising oil prices were a function of “accelerating demand.”

 

Oh, ok.

 

Someone might want to tell the Chinese about that…

 

Something (hint: Growth Slowing) is making the Chinese very nervous about this whole Global Money Printing thing. Nervous enough to cut the reserve requirement on banks for the 2nd time in the last few months. There are very few high-frequency economic data points coming out of China and/or Asia in the last week that don’t support this non-Greek headline of growth slowing sequentially.

 

But have no fear, Andrea Mitchell is here. Yes, as in the Maestro on these macro matters, Alan Greenspan’s, wife (and Foreign Affairs correspondent on everything NBC). On Meet The Press this Sunday Andrea called out that she saw “$5 Dollars for Supreme” at the pump.

 

Hoo-wah!

 

“Apres nous, le deluge.” Sadly, maybe then, and only then, our elite central planners won’t have us pay for their taking car service to work.

 

After being long Consumer Discretionary (XLY) stocks for most of December-January (on Strong Dollar = Strong Consumption), I shorted the Sector ETF on Friday. My immediate-term support and resistance ranges for Gold, Brent Oil, WTIC Oil, EUR/USD, and the SP500 are now $$1730-1747, $116.89-120.56, $100.91-105.88, $1.30-1.32, and 1350-1363, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Le Greek Deluge - Chart of the Day

 

Le Greek Deluge - Virtual Portfolio


Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

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