“There is nothing more deceptive than an obvious fact.”
Holmes has always had my vote as having one of the best analytical processes. Since Wall Street is such a fan of storytelling, I have always been surprised that the pundit patrol doesn’t reference this late nineteenth century fictional character more often – maybe it’s because his creator was Scottish!
Scotland is where my wife and I have ancestral roots, so we’re a little biased, but in this case even the British tend to hold Sir Arthur Conan Doyle’s 56 short detective stories in high regard as well. Regardless, whether you’re Scottish, British, or American this morning, we better all hope and pray that the newly appointed head of the US Treasury, Tim Geithner, upholds the principles of deductive reasoning that Holmes did. Lord knows, Geithner’s predecessor didn’t do the required reading.
Rhetorically at least, “no drama” Obama’s intellectual prowess has stated that this US Administration will consider all voices of reasoning. Whether or not he can deliver on his rhetoric remains the bid/ask spread that we have seen narrow from a 69% approval rating in the first week of January to 60% this week (Rasmussen poll). While polls have their biases, all I care about is measuring this delta.
In Obama does America trust? Last time his approval rating tested the 60% line was the week of November the 20th. From that November 20th bottom of 752 in the SP500, the market climbed that wall of rightly placed socialist doubt right up to a closing price of 934 on January the 6th. Sherlock’s math clocked that 9% approval rating delta at being worth a +24.2% price differential in US market expectations. Does confidence matter to markets? You bet your Madoff it does!
So where do we go from here? As Wall Street execs love to say “Keith, that’s a great question”… and since Obama is calling for all voices of Sherlock style “deductive reasoning”, here’s my advice: Mr. Geithner, you need to walk away from Hank The Market Tank’s “strong US Dollar” mantra, and break the greenback. That’s it – if you want assets likes houses and portfolios to re-flate, that’s all you need to do.
Yesterday, as the US Dollar was taking it on the chin, we were given an appetizer for this re-flation “Trade” – gold was making a 5 month high, oil was ripping higher, and even the Roubini-ites we’re being forced to cover their shorts. At one point, the SP500 took a peak at the 850 line, putting it up a healthy +2.2% on the day. Then reality bit, a few facts about Bank of America hit the tape, the US dollar paired some of her losses, and stocks went right back down, registering a daily peak to trough -2.5% reversal.
Mr. Geithner, let’s put a muzzle on that China is a “manipulator” lingo of your almighty banking forefathers past. Let the Chinese Yuan appreciate and the US Dollar decline. A break in the US Dollar Index of 83.97 combined with a breakdown in Volatility (VIX) below the 45.24 line will get me to invest some of this 69% position my Asset Allocation Model is holding in Cash. If Americans save less cash and invest more of it, you and Larry Summers will need to ask for less of that “G” (government spending). Sustainably break the buck and get the SP500 to close over the 875 line, and the bullish re-flation trade will be a tough one for even the bears not to chase.
Mr. Geithner, as head of the US Treasury, China is now your largest customer. Forget about the good ole days at the New York City Fed – those champagne toasts with Goldman’s ex-CEO turned Destroyer of Capital are not to be forgotten, but to be understood. Investment Banking Inc. is no longer who you need to pander to – you need to patrol them, and all of the moneys that we give them.
Mr. Geithner, Obama’s White House better be all over you on this – you will be both accountable and transparent. Whether or not we trust you is now your game to lose. Some Volcker-like voice of reason is already in motion reminding your boss that one reason that the US Treasury market is shaking right now is because of you. The Chinese took your “manipulator” comment and sold Treasury bonds in your face – after all, don’t forget that that’s what Kenny Lewis and the boys on the bus down at BofA did to them – remember?
We must remember the facts, because the world is watching us real time, and she doesn’t forget. Whether it is Bank of America selling its stake in Chinese banks or the Pandit Bandit thinking he can get away with buying a brand new $50M jet for his cronies at Citigroup and not call it TARP moneys… it’s all one and the same.
Transparency, Accountability, and Trust – these principles take a career to earn and one bad decision to lose. If you don’t want to take this mantra from me, take it from someone else and call it their idea – I am indifferent, because I just want this country to have credibility again. Sherlock Holmes called these “obvious facts” – let’s not be deceived by them any longer.
Best of luck out there today.