“Moral purpose characterized the march in an age of increasing amorality and political duplicity.”
-Victor Davis Hanson (The Soul of Battle)
Markets don’t have morals; people do. People and politicians plan; markets rise and fall. All the while our society changes. Contrary to many economically partisan beliefs, the stock market’s price doesn’t always reflect that either.
Some say that market prices reflect the health of a country. We say a country’s currency does. Some say that market volumes “don’t matter.” We say they reflect The People’s trust in the market’s price.
Newly minted Republican VP candidate Paul Ryan says fiscal and monetary policy have causal effects on jobs, growth, and inflation expectations. President Obama says Ryan is an ideologue. Both are probably right. If there ever was a pervasive economic ideology of both the Bush and Obama Administrations, Keynesian Economics swallows the cake.
Back to the Global Macro Grind…
Everything that really matters in Macro Markets happens on the margin. We think that, on the margin, Paul Ryan is going to be US Dollar bullish over the intermediate-term TREND (3 months or more). He will, at a bare minimum, change the economic debate.
To contextualize that, across our core risk management durations (TRADE/TREND/TAIL), here’s how the US Dollar looks:
- TRADE = bearish (resistance = $83.06)
- TREND = bullish (support = $81.69)
- TAIL = bullish (support = $78.62)
In other words, like it did in the early 1980s, our math thinks the intermediate (TREND) to long-term (TAIL) resuscitation of a decade of political Dollar Debauchery is coming to an end. With the inverse of what Dollar Down has meant to Global Consumers for the last 10 years now in play (Brent Oil prices up +337.5% since August 13th, 2002), that’s a very good thing.
Back to this whole ideologue vs. demagogue thing…
As a reminder, our ideological framework on what inflates/deflates currencies (i.e. the only risk management process that’s really worked across the last 99 years of economic history post the Federal Reserve Act of 1913) has 2 key components:
- Monetary Policy
- Fiscal Policy
If short-termism (politics) is driving both of these policies the wrong way (printing money and deficit/debt spending as far as the eye can see in order to prop up stock market prices), you ultimately get a nasty employment, growth, and stagflation situation in store for your people. Sound familiar?
- Britain 1960s
- USA 1970s
- Europe/USA today
Yep, today it’s a race to the bottom. Who can implement the more left-leaning 2-stroke combo of Monetary and Fiscal Policy?
Thankfully, I’m not a Bush Republican or an Obama Democrat so I don’t have to shape my storytelling to a partisan conclusion. Economically speaking, I’m center-right. I don’t lever my family or firm up with debt. I’d rather die than beg for a bailout.
Both Bush and Obama were center-left. Krugman vs Bernanke is hard left versus center-left (Bush and Obama had Geithner and Bernanke).
- Keynesian Economics = center-left
- Hayekian Economics = center-right
Paul Ryan is a professional politician, but not unlike many successful politicians who have come before him he has effectively borrowed what Margaret Thatcher did in the late 1970s, slamming it down at the Tory Convention, saying “this is what we believe!”
What do you believe? It’s hard for me to believe that more than 1 out of 100,000 Americans can explain the difference between Keynesian and Hayekian Economics, never mind which one they believe. That will change. Unless this time is different, of course.
Do you believe piling more debt-upon-debt, taxing, and spending, is going to give you the elixir of promised economic growth? Do you believe that easy monetary and fiscal policy debauches your currency and gives you inflation in food/energy, perpetuating a slow growth, no jobs, economy?
Do you believe in partisan fairy tales? Moral Markets don’t. Because they aren’t moral. This election is now going to be all about something that’s at least a little closer to what’s been driving us all apart.
My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and the SP500 are now $1611-1628, $110.89-115.35, $81.79-83.03, $1.21-1.23, 790-803, and 1, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer