This note was originally published at 8am on March 02, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Europe does not just face a debt crisis, Europe also faces a growth crisis.”
Growth Slows As Inflation Accelerates. I wrote that in every other Early Look note between February-April of 2008 and 2011 and, unless the US Dollar doesn’t catch a credibility bid soon, I’ll write it again from February-April of 2012.
Why is it that people in our profession didn’t believe me then? Why is it that they don’t believe me now? Do less people believe me less? I really have no idea on what the answers to these questions are. The only thing I am certain of is that my process for intermediate-term economic forecasting using the US Dollar as my lead indicator for Growth and Inflation has not changed.
Sadly, neither has the broken processes of those who had both the 2008 and 2011 Growth Slowdowns wrong.
Back to the Global Macro Grind…
Britain’s Prime Minister David Cameron gets this. The Chinese, Indians, and Brazilians get this. So why is it that the Crack Keynesian economists, who got the USA, Japan, and Italy into this mess to begin with, don’t?
That’s pretty simple. It would mean they’d have to hold themselves accountable for structurally impairing the long-term economic growth prospects of Global GDP via Keynesian/Fiat Policies to Inflate.
Got data to support these attacks on the aristocracy of our academic elite?
Let’s look at yesterday’s American Institute of Supply Management Report (ISM) for February (see Chart of The Day):
- GROWTH: Slowed -3.1% sequentially (month-over-month) to 52.4 from 54.1
- INFLATION: Accelerated +10.9% (month-over-month) to 61.5 from 55.5 (Prices Paid)
- POLICY: Dollar Debauchery began January 25th after Ben Bernanke push his Policy to Inflate to 2014
So why didn’t markets go straight down on that yesterday?
I have no idea – they didn’t until May of last year either. Markets will do what they do, until they don’t. The German hyper-inflation of the 1920s saw its stock and commodity markets rise as real (inflation adjusted) German Growth Slowed to all-time lows too.
No worries. According to the Chairman of The US Federal Reserve’s CYA Career Risk Management campaign:
- GROWTH: Qe2 (ended Q2 of 2011) was supposed to get us a US Growth acceleration to 3.5-4% (it was 0.36% in Q1 2011)
- INFLATION: never – at all-time highs in food and energy prices, you’ll never see it, ever (it ramped to 4-6% in 2011)
- POLICY RESULTS? Bernanke said this yesterday and I almost fell out of my chair:
“We’ve had about 2.5 million jobs added … and we’ve seen big gains in stock prices…”
Oh. Ok. Now that the stock market is up, we need to do more of what we did from an inflation policy perspective last year – because, uh, it actually worked? This is the kind of groupthink, dogma, and confirmation bias that almost every behavioral psychologist of the modern Millennium shuns. Enough of the Great Depression fear-mongering thing already.
It’s ok to admit it.
We have a pending Growth Crisis in Japan, Western Europe, and the United States of America. Like an AA meeting, we might have to all say it together: “we are addicted to easy money, inflation, and debt – they structurally impair growth.”
Got math to support these plainly visible claims? Let’s look at how US Growth (GDP) did as the US Dollar Strengthened in Q4 of 2011:
- US Dollar Index and American Purchasing Power rose +6.7% from mid October to the end of December 2011
- US GDP Growth Accelerated from +1.34% in Q2 2011 (highest inflation quarter of 2011) to +2.98% Q4 2011
- US Consumption Growth Accelerated from +0.38% in Q2 2011 (lowest since Q1 of 2009) to +1.17% Q4 2011
The math is so trivial that only an un-elected Central Planner can obfuscate it to the Muppets in Congress at this point.
Facts about US Economic Growth:
- US Consumption represents 71% of US GDP – get that right, you’ll get mostly everything else right
- Export Manufacturing won’t move anything but the political dial – debauching the Dollar for “export” growth has not worked
- Strong Dollar Deflates The Inflation = Higher Real-Inflation Adjusted Consumption = Higher US Growth
Setting aside the accounting irregularities of the US Government on silly things like birth/death adjustments to the US Employment report and using a GDP “Deflator” that’s usually understating US inflation anywhere between 50-1000% (GDP Deflator for Q4 was 0.86%, when CPI and PPI blended averages for Q4 were approximately 500% higher), you should feel better now.
You shouldn’t feel better about America’s long-term Growth Crisis. You should just feel better because I am telling you the truth.
My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1697-1735, $123.29-126.41, $78.11-79.22, and 1363-1375, respectively.
We’ll be hosting our Sovereign Debt and Demographic Reckoning Conference Call on Japan at 11AM EST. Please email Sales@Hedgeye.com if you are interested in participating.
Best of luck out there today and Happy Birthday to my beautiful little girl, Callie.
Keith R. McCullough
Chief Executive Officer