This note was originally published at 8am on June 11, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“I could as easily bail out the Potomac River with a teaspoon as attend to all the details of the army.”
So, in the last 3 trading days, you’ve had begging for Bernanke, a Chinese rate cut, and now another European bank bailout. Nice. Sounds like this must have been the bull case all along. Losers win.
To Lincoln’s point, these people have issues. Bigger issues than a 9 handle pre-market rally in the S&P Futures are going to solve (it was 16 handles on the “news” last night). Piling more debt-upon-debt-upon-debt is the last thing that global consumers need.
As a reminder, short-term Big Government Interventions (money printing and debt leverage) stoke commodity (oil) price inflations. Policies To Inflate then slow global economic growth. They also eradicate whatever is left of investor trust.
Back to the Global Macro Grind…
Without credible markets, you don’t solve the #1 issue people have with Global Macro markets right now – trust. Without trust, conflicted and compromised politicians will do just about anything to attempt to save their short-term political career risk. That’s no long-term economic plan for prosperity.
This Teaspoon Bailout strategy is not new obviously. You only have to go back to 2008 when ex-Goldman CEO (and credit derivatives market leader), Hank Paulson, brought out the US Bank Bailout Bazooka. The market rallied into the event (inside information), then rallied for about a nanosecond on the “news” to lower-highs, then resumed its decline.
Then, the former Dartmouth football player (Hank) was seen puking in his garbage can…
Have no fear however, Timmy is still here. There is no question in my mind that central planning pool boy in Chief, Tim Geithner, advised the Europeans to do the same thing he advised America’s politically compromised back then. Having never worked a day outside of Washington’s political elite in his born life, this is what Geithner was sent by his god on this earth to do – bailout banks.
This concentration of conflicted political power gets scarier when you think about how close Geithner is to both the President of the United States and the Washington based (and US tax payer backed) IMF. Geithner is fighting for his short-term political life. And, in the long-run, my grand-children are not yet dead.
As a reminder, Big Government Interventions in what were our free-markets:
- Shorten Economic Cycles (through short-term asset price inflations)
- Amplify Market Volatility (through made-up bailouts and rules mid-game)
That’s just a bit off versus the Fed’s Congressional mandate for:
- Full Employment
- Price Stability
Regardless, in exchange for a 9 handle pop in the US futures and Spanish stocks going from down -31% from their YTD peak to -24% (i.e. still crashing), global consumers get themselves a nice pop in taxes, back up to $100/barrel Brent oil.
Dollar down, Euro up, Oil up. Nice.
Just when I was starting to get bullish, from a price (1283 long-term TAIL support), the #1 factor that made for our #GrowthSlowing call in February-March, gets put back on the table via Bernanke begging and Europe bailing. There is nothing that slows real (inflation adjusted) growth faster than food/energy prices rising.
Now if you are in the March 2012 bull market camp that “this time is different” and the world is “de-coupling”, that’s perfectly fine. That’s what makes a market. Piling more debt-upon-debt in Europe is only going to make this structurally low-growth and no-trust market environment worse.
Into and out of the Bernanke Begging last week, we cut our US Equity asset allocation back down to 0%. After starting the week at 12% US Equity allocation, that made for a good week. That puts our current Hedgeye Asset Allocation Model in the following pre-game position:
- Cash = 76% (down from 82% last Monday)
- International Currency = 12% (all US Dollar, all the time = UUP)
- Fixed Income = 12% (US Treasuries and German Bunds = TLT and BUNL)
- US Equities = 0%
- International Equities = 0%
- Commodities = 0%
In other words, we’re already losing today. And we expect to be held accountable for those losses.
While I could say what I would have done if I had this Spanish inside information on Friday afternoon, I won’t. I won’t say that if some conflicted and compromised politician in Washington called me with a look-see that I’d pick up the phone either.
Last I checked, in most parts of the country, cheating and bailing out banks is still un-American.
My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, and EUR/USD, and the SP500 are now $1542-1602, $95.61-100.91, $80.02-82.63, $1.24-1.27, and 1305-1344, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer