This note was originally published at 8am on July 17, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“If you’ve got a business, you didn’t build that.”
-Barack Obama, July 16th, 2012
Really? I couldn’t make up what the President of The United States said (off teleprompter) yesterday in Roanoke, Virginia if I tried. I guess I should send some wine to Barry and Timmy for keeping Citigroup’s research unit intact. Thanks for the help boys.
Obama went on to say that “somebody else made that happen.” I thought for a minute he was referring to my almighty God. Then I thought again. By somebody, he meant government.
Sadly, the same goes for how Obama, Bernanke, and Geithner think about the US stock market. They fundamentally believe that by not intervening, our markets won’t work. That’s not the America I came to in the early 1990s. That’s just sad. This is a No volume; No Trust market – if you’ve got a confidence and hiring problem Mr. President, you built this.
Back to the Global Macro Grind…
Now that I got that off my chest, onto the American Made Central Planning Hope of The Day – Ben Bernanke’s testimony at 10AM EST in front of our clueless economic overlords in the Senate.
This is actually getting as funny as it is pathetic. Ahead of whatever sweet-nothing Bernanke will whisper about Qe4 today, markets are front-running him again. This has been happening all year. Each rally is shorter in duration, and to lower-highs in elevation.
Commodity markets in particular are straight up into the right. If you are into the Down Dollar Drugs (USD was up yesterday until that bomb of a June US Retail Sales print of -0.5%), that’s where you get your short-term fix. That’s where the boys who jacked 1.05 million commodities options contracts (CFTC data) right back up to their early April highs are looking for some pop.
“Pop, pop, bang!” (Jimmy Braddock’s punching combo in Cinderella Man).
Unfortunately, that’s how it all ends. They’ll get their pop, then its lights out for whatever is left of US Growth. With US GDP Growth this slow, everything on the margin really counts – and the last thing the US (and global) economy needed was a +17% rip in the price of oil since late June on Bernanke Begging.
That’s why we are starting to see the market leaders of both the US economy and US stock market (Technology and Consumer Discretionary) start to lag. While they loved the tax cut of $89 Brent oil in mid-June, they do not appreciate $104/barrel staring them in the face this morning.
With the SP500 down for 7 of the last 8 trading days, this is how the S&P Sector ETF laggards look like for July and Q3 to-date:
- Consumer Discretionary (XLY) = -1.01%
- Technology (XLK) = -1.69%
- Industrials (XLI) = -2.92%
Now if I have been anything since March 12th when we shorted Industrials (XLI) on the #GrowthSlowing call, I have been consistent. My team’s research has also been very consistent on what infects real (inflation adjusted) US Consumption Growth too – the marginal price inflation of food and energy.
Since 71% of the US Economy = Consumption, this is one of the main things you need to get right if you want to get the slope of growth in the US economy right. That’s precisely why the politicians of the 112th Congress have had their policy to inflate food/energy prices all wrong.
Post 2006, Bush had this as wrong as Obama has it now. Don’t forget that both Presidents empowered Bernanke. For Bush, that was then. For Obama, we live in the now. And not letting free-market prices clear for the sake of a broken belief system that central planners can “smooth” economic cycles and suspend economic gravity is now his problem.
Your conflicted and compromised cronies built this environment for small business owners and market participants in America. My team and I have been building our business in spite of you.
My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar Index, EUR/USD, Spain’s IBEX, and the SP500 are now $1559-1598, $100.25-104.02, $82.47-84.03, $1.20-1.23, 6408-6767, and 1339-1365, respectively.
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
