This note was originally published at 8am on May 29, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Persistence – just sticking with this thing day after day after day.”
Born on May 12th, 1900, in Dayton, Ohio, Captain Joseph Rochefort was one of America’s bravest. He was a “major figure in the United States Navy’s cryptographic and intelligence operations from 1925-1946, particularly in the Battle of Midway.” (Wikipedia)
Ian Toll introduces Captain Rochefort, his team, and their analytical process, in Chapter 9 of Pacific Crucible – a book I had the pleasure of finishing over Memorial Day weekend, and one that really resonated with what it is that we do here in New Haven each and every morning.
When it comes to time and patterns, these American military men had discipline. “If you observe something long enough, you’ll see something peculiar. If you can’t see something peculiar, if you stare at it long enough, that in itself is peculiar… you look at it until you see something that attracts your attention, your curiosity… The next day you come back and look at it again.” (pages 305-306)
Day After Day – again and again and again.
Back to the Global Macro Grind…
Sometimes I think we are too selfish to take the time to contextualize the moments in life that we all share. I know that I certainly am. That’s why I try my best to take the time to study history.
The history of applying Chaos and Complexity Theory to what it is that we know about markets is relatively short. By the time we are all long gone, I suspect that what we think we know now will be as archaic as cryptography seemed in 1941.
Time and Patterns. They matter.
Last week’s intermediate-term TREND pattern of a Strong Dollar continued to Deflate The Inflation in what we call Bernanke’s Bubbles (Commodity Prices). With the US Dollar up for the 4th consecutive week, here’s how that was priced:
- CRB Commodities Index = down -3.1% (down -13.8% from its February 2012 high)
- Gold = down -1.4% (down -12.2% from its February 2012 high)
- Oil (WTIC) = down -0.7% (down -17.6% from its February 2012 high)
This morning, with the US Dollar Index down -0.14% to $82.26, most of Bernanke’s Bubbles are bid higher. But, when considered within the patterns of their Bearish Formations (Bearish on all 3 of our risk management durations, TRADE/TREND/TAIL), their no-volume bids appear fleeting.
Here are the broken TAIL lines of the aforementioned commodity bellwethers:
- CRB Index = 318
- WTIC Oil = $96.23
- Gold = $1676
In other words, if the US Dollar goes down (and commodities go up) every day this week, it doesn’t matter. Or at least it shouldn’t for “long-term” investors looking to manage the long-term mean reversion risks associated with these asset prices.
The longest of long-term risks to Commodities remains the biggest opportunity for not only American Consumers, but Global Consumers of food and energy.
The #1 risk factor pricing that risk/reward scenario is the US Dollar Index’s price itself. I’ve said this Day After Day after day, and I’ll say it again and again and again – get the US Dollar right, and you’ll get a lot of other things right.
Getting real (inflation adjusted) US Consumption right would solve for the number one thing that the world needs right now – unlevered growth. US Consumption represents 71% of US GDP.
Strong Dollar = Strong Consumption, on the margin. Unfortunately, that’s not what you are going to get as long as the conflicted and compromised cheer on higher gold and oil prices. That’s just what they need to get paid.
This week’s Macro Catalyst Calendar will be just another reminder of that:
- Tuesday: US Consumer Confidence for the month of May should improve as food and energy prices fall
- Thursday: Q1 2012 US GDP should continue to be revised to the downside, reflecting higher commodity prices in Q1
- Friday: US Employment Report for May should continue to see the soft results of a country that debauched its currency
We, as a country, have a tremendous opportunity to learn from our mistakes. That’s why we study history. That’s why, when it comes to “full employment and price stability”, we understand that the Down Dollar and Treasury Debt Monetization policies of Bush/Obama yielded no better results than those of the Nixon/Carter Administrations.
The 1970’s had Arthur Burns at the Fed. The last 6 years have had Ben Bernanke. Day After Day, both he and the President want to remind you of the war we all fought in 2008. I just want to talk about today, and what we can do for a better tomorrow.
My immediate-term support and resistance ranges for Gold, Oil (WTIC), US Dollar, EUR/USD, and the SP500 are now $1566-1601, $104.69-108.12, $81.63-82.49, $1.24-1.26, and 1296-1335, respectively.
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer