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“Increasing taxes on successful risk takers will slow the accumulation of equity and discourage risk taking.”

-Edward Conard

This weekend I finished reading Edward Conard’s “Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong.” On an ABC scoring scale, I’ll be nice and give the book a B (minus). The book’s title is a borrowed one – and the “truth” is written from a partisan perspective (Conard was a Managing Director at Bain who made a million dollar contribution to a Romney Super Pac).

If you are well versed in Global Macro markets, economic history, and frameworks of economic thought, you don’t have to start reading this book until page 195 where Conard asks 3 important questions: “How does America protect its economy from another crisis? How does it reduce unemployment and revive growth? And how does it balance the federal budget – by raising taxes or cutting costs?”

Good questions; average at best answers. Not once did he use modern day math (Chaos or Complexity Theory) or any aspect of current Behavioral Economics (Kahnmen/Tversky/Taleb). He focused mostly on how bad the likes of Keynesian “multiplier-effect” economists like Christina Romer have been in advising Obama. But everyone who doesn’t do drugs knows that just as well as an MBA from Harvard does.

The only question Conard answered really well (that I haven’t read anywhere else) was the unemployment question. That’s why I gave him the Hedgeye Quote of The Day. Central planners like Ben Bernanke and Tim Geithner (who have never had to take on risk with their own after tax capital and meet a payroll in their life), do not get this very simple relationship between risk capital and hiring.

Take it from me (a small business owner in America). It’s one of the main reasons why US Unemployment is high and US Consumer Confidence is low. People don’t trust this will end well.

Back to the Global Macro Grind

In the last 3 weeks, the USA has had some terrible economic data related to hiring and confidence:

  1. NFIB Small Business Survey in June plummeted to a fresh YTD low of 91.4 versus 94.4 in May
  2. US unemployment rate of 8.2% for June didn’t budge as non-farm payrolls missed badly (again) at 80,000
  3. University of Michigan Consumer Confidence for early July got smoked to another YTD low of 72 (versus 73.5 2 weeks ago)

That last data point actually came at 10AM EST on Friday morning after the US stock market was already up +1% on the day. Bad news for America is obviously bullish for the only part of the bull case that’s left (Qe rumors and bailouts). Throw a little China “rate cut” rumor on top of that fire into Friday’s close, and you had yourself one mother of a no-volume rally. It was the market’s 1st up day in the last 7.

Hooray. Now what?

1.   ASIA: After the Chinese didn’t deliver on the USA manufactured lie of the day (Premier Wen actually told the media he wants it “clearly understood” that China’s #GrowthSlowing continues at an accelerating rate), stocks in Shanghai closed down another -1.7%, hitting fresh YTD lows. Like US Small Business and Consumer Confidence, fresh lows are great, right?

2.   EUROPE: Despite the no-volume rally in US Stocks (down 29% volume day versus my top 10 down days in Q2) on Friday, Europe opened like a wet Kleenex. Spanish, Italian, and Russian stocks all remains in crash mode this morning at -25%, -22%, and -20%, respectively, from their YTD tops. More bailout debt is only going to structurally slow real (inflation adjusted) growth further.

3.   COMMODITIES: while US stocks were flat to down last week (depending on the index), Commodity Inflation had some rip-roaring fun in the sun, with the CRB Index up a full +2.4% on some good ole fashioned food (corn!) and oil (+3.1% wk-over-wk) inflation. Better yet, the CFTC weekly options data showed a +8.9% wk-over-wk pop to 1.05 million contracts!

To put that commodity price speculation into perspective, that 1.05 million number is the highest level of commodity inflation betting since, you guessed it, April 3rd, 2012. The Chinese, just fyi, aren’t going to cut rates if food/energy starts to rip again. That perpetuates civil unrest.

Q: What else peaked on April 2nd, 2012? A: The SP500 (at 1419).

And so it begins…

Another week of storytelling and fun at the gong show that has become our centrally planned market. Will Ben Bernanke deliver the elixir of #BailoutBull drugs at this week’s Senate and House meetings? Will US Housing not slow from its epic Q1 weather highs? Will earnings, un-adjusted for guys marking up their books into month-end, matter as they slow?

Only time and price will tell. All the while, the Unintended Consequences of a No Trust; No Volume marketplace will continue to play a much larger role in whatever centrally planned life someone writes a book about next.

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $96.95-102.91, 83.01-84.33, $1.20-1.23, 6, and 1, respectively.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

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