This note was originally published March 28, 2012 at 07:53am ET.
“The Fed has effectively declared currency war on the world.”
If his Policy To Inflate persists any longer, Ben Shalom Bernanke is likely to go down in history as America’s last completely politicized head of the US Federal Reserve. When compared to Alan Greenspan, that’s saying something.
During QE1 and then, to a lesser extent, during QE2, I’d have been in the minority making a statement like that. Today, as he sheepishly pushes for QE3, 4, and 5, I have plenty of company.
In Currency Wars , Rickards ends the introduction of his book by suggesting that “in the end the reader will understand why the new currency war is the most meaningful struggle in the world today – the one struggle that determines the outcome of all others.”
The glaringly obvious part of this new American reality is that, deep down, the Fed Chairman is very insecure about this. Why else would the man be engaging in a personal PR War with Twitter and appearing with Diane Sawyer on ABC?
At George Washington University yesterday, the vaunted historian of an era that didn’t have the internet, a globally interconnected Asian economy, or Apple, continued to proclaim his mystery of faith:
“We did stop the meltdown… we avoided what would have been, I think, a collapse.”
Great. Just great. Thanks for saving us from challenging your academic textbook, Ben. Now what about today? What about Burning The Buck back towards 40-year lows and ripping us a new one with these gas prices 3 years later?
Back to the Global Macro Grind…
I’ve fought the Fed before, and won. If no one else wants to strap it on and do this, I’ll officially wear the C and stand on the front lines of this war. If the last 3 weeks of Down Dollar is the best you have Bernanke, game on.
“Don’t fight the Fed.” Yep. Got it. That and Madoff’s returns are about as believable as the Hunger Games. On our Q2 Macro Themes call in early April we’ll show you a full slide deck of what fighting the Fed at intermediate-term market turns has saved you:
1. Q1 of 2008 – when the entire construct of Old Wall Street was begging Bernanke for “shock and awe” interest rates cuts (remember that?), he delivered his constituency the goods by cutting to 0% (but had to scare the hell out of The People to do it). Easy money then delivered the world’s consumers $150 oil, and one heck of a Consumption Crash.
2. Q1 of 2011 – after QE1 stocked commodity inflation … and more of that (QE2) perpetuated a huge slow-down in real (inflation adjusted) consumption growth (Q1 2011 US GDP 0.36%), fighting the Fed in Q1 of last year was one of the best Global Macro calls, ever. From Q1 of 2011 to the lows of October, Asia, Europe, US Small Caps, Commodities crashed.
3. Q1 of 2012 – if you’re selling the hope of Growth’s Slope (slowing), you are in the middle of fighting Bernanke’s War right now.
From America’s perspective, it’s a war on savers and consumers. It’s a war on our Constitution. It’s a war against objectivity, flexibility, and gravity. And, most importantly, it’s a war against Free Market Capitalism.
From the rest of the world’s perspective, let me start with 1 very simple fact – we are talking about the World’s Reserve Currency. That is a privilege, not a political weapon to be abused by an un-elected bureaucrat. That’s what China, India, and Japan have to deal with when they import oil. Food and Energy is what the world actually consumes. And commodities are largely priced in US Dollars.
That’s why every time Bernanke Debauches The Dollar, Global Growth Slows. I don’t know how much more evidence you need of this simple fact – COMMODITY INFLATION SLOWS GROWTH!
Look around you. Away from Apple going up, this is what’s going on in the world this morning:
- Asian and European stocks are falling (China and India stopped going up in FEB; Spain is getting smoked, etc.)
- Pro-cyclical Stocks and Commodities (Energy stocks, Copper, etc.) are mapping Asian stock market declines
- Treasury Bond Yields are falling, again (10-year yield is down -8% in a straight line to 2.20%)
As David Einhorn reminds us, on Wall Street fooling some of the people some of the time happens. But you can’t fool all of the world’s people, all of the time, that rising commodity prices have nothing to do with the world’s currency price in which they are sold. The #1 story on Reuters this morning: “Americans Angry With Obama Over Gas Prices” – they should be angry with Bernanke.
Sorry David Axelrod, you’re not going to solve the world’s anger by “tapping the SPR.” The most obvious way to get oil prices down is by the Fed raising interest rates. Don’t buy that? Or your inflated stock and commodity portfolio can’t afford that? I dare you to buy Oil and/or Gold Futures after you get the inside looksy that Bernanke is going to raise rates on a Sunday night on 60 Minutes.
If you can’t tell, I’ve had it with these conflicted central planners. Politicians in Washington and the halls of Western Academic Dogma that advise their career risk on economic matters can tell stories to students and whoever in the media is gullible enough at this point to believe them – but that will not end this war.
Bernanke’s War is on. And the rest of the world is watching.
My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), Spain’s IBEX, and the SP500 are now $1661-1689, $122.41-124.67, $78.83-79.37, $82.67-84.12, 8101-8395, and 1404-1418, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer