This note was originally published at 8am on June 18, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Our mediocre and bankrupt elite, concerned with its own survival, spends its energy and our resources desperately trying to save a system that cannot be saved.”
This weekend I finished reading Death of The Liberal Class. It’s my kind of book. Not because I agreed with everything in it, but because it made me think outside of my comfort zone. Chris Hedges was fired by the New York Times for having a point of view.
Some people call Hedges a socialist; others call him a libertarian. I’ll call him one of the many men and women who need to be heard. You don’t have to agree with everything someone says to be empathetic to their perspective. That’s a democracy.
The perspective of almost every politician making central planning calls on the fly right now is that of their own political career risk. In the short-run (this morning), that means they might need a “coordinated action” for the market’s un-coordinate reaction. In the long-run (the next 3 years), doing more of what has not worked will make their political careers dead.
Back to the Global Macro Grind…
Let’s start with what markets are not doing this morning – going up. This is coming off the 2nd Bailout Sunday in a row where the S&P Futures opened 15 handles higher than where they wound up come Monday morning.
Got expectations? Markets do. Sadly, Our Saviors don’t. From Obama’s Spanish bank bailout man Tim Geithner to Italy’s Mario Monti, these people don’t have a clue as to what they are building into this globally interconnected market’s set of expectations.
Big Government Intervention policies (causality) drive currencies. Currency moves drive asset price inflation/deflation (correlation). For now, that is the deep simplicity of what anyone who manages real-time risk has to deal with in real-time. Fun.
With the US Dollar DOWN for the 2nd consecutive week, Global Equity and Commodity prices went UP last week:
- US Dollar Index = -1.5% in the last 2 weeks to $81.63 (from $82.89, the weekly YTD closing high)
- CRB Commodities Index = +1.5% in the last 2 weeks to 272
- SP500 = +5.0% in the last 2 weeks to 1342 (from 1278, the weekly YTD closing low)
Now, while some might say the last few weeks of stocks and commodities rising were based on “fundamentals”, I’ll remind you that is a crock.
Never mind Europe, last week’s US economic data was as weak as any we have seen in 2012:
- US Retail Sales missing on Wednesday had stocks selloff hard on the news (Consumer stocks down -1.6% on the day)
- US Jobless Claims rising to 386,000 (20% higher than where the data was in March), got Qe3 whispering back “on”
- US Consumer Confidence (University of Michigan survey) dropped like a rock in June to 74.1 (vs 79.3 in May)
So, you buy stocks and commodities on that, right?
The only reason why you’d do that (and more of it was short covering, by the way, because volume in this stock market has gone bone dry) is because you were either begging for (or fearing) more bailouts and easing.
Is that what Our Saviors have reduced our markets to? Begging and fearing? This is all turning out to be as pathetic and sad as each and every rally looks to lower long-term highs, on lower and lower volumes.
To be fair, some of the options brokers in currency and commodity markets are seeing some flow (the flow is what you get paid when customers pay you a commission to transact). Chucky Evans from the Chicago Fed loves getting a piece of that flow. Who said a politicized man at the Fed can’t be bought and paid for? Can you pay me $25,000 to speak at a road-show lunch?
To get a little more granular on the commodity “speculation” side of the flow, here’s how last week’s CFTC flow data looked:
- CRB Commodities net long contracts = +9.1% week-over-week (to 587,327 contracts)
- Silver net long contracts = +12% week-over-week
- Farm Goods net long contracts = +21% week-over-week
Yeah, bro. You get Chucky up there talking down the Dollar and we’re going to dance. Especially as global demand slows, bro. Because we are absolutely and positively paid to speculate on policy, not fundamentals, bro.
Not sure on the bro thing, but I am certain that I have no idea what do in these markets any more than the next guy/gal who has the next Fed or Treasury or ECB whisper. Maybe that’s what Our Saviors consider the New Democracy.
My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1587-1637, $95.72-98.47, $81.58-82.26, $1.24-1.26, 6260-6794, and 1319-1347, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer