This note was originally published at 8am on August 09, 2012 for Hedgeye subscribers.
“But you go through and scare the game and your cattle eat the grass so the buffalo leaves and the Indian starves.”
That’s one of the most important quotes from one of the most important leaders of 19th century Western American history. I’d bet that a large percentage of Americans don’t know who the Principle Chief of the Comanches was (or why what he did for the US cattle business between 1870-1884 was so critical).
That’s why I read so much history. It helps me contextualize longer-term investing themes within the boundaries of how humans are forced to make short-term decisions. Ultimately, the Comanches traded their long-term liberties for short-term “Grass Money.” If you know anyone begging for bailouts, for the love of the country, please ask them to think about that.
As S.C. Gwynne reminds us at the end of Empire of The Summer Moon, the same kind of question should be on your mind this morning about devaluing your hard earned currency for the sake of short-term asset price inflations - “whether or not the Indians should do what everyone else in America did: lease.” (page 297)
Back to the Global Macro grind…
If Grass Money killed the buffalo, Fiat Fool Money is going to kill whatever is left of your “free” markets. On the heels of China and India reporting another round of #GrowthSlowing data overnight, “futures rally on hopes for Chinese stimulus.”
Alrighty then. I guess we’ll suspend economic gravity for another day.
Here’s the China data, in context:
- Industrial Production growth = +9.2% y/y vs +9.5% in June of last year
- Retail Sales growth = +13.1% y/y vs +13.7% in June of last year
- Fixed Asset Investment growth = flat y/y at 20.4%
A) On the margin (where risk managing macro matters most) growth continues to slow
B) These are hardly the “freak-out” recession or stagflation type levels of growth requiring a Geithner-like bailout
C) Chinese stocks were up a whopping +0.6% on the “news” (still down -12% from where they were in May)
In May, not only Chinese growth, but global growth really started to accelerate on the downside. That’s why almost every major stock market in the world stopped going up in March-April. Markets discount future events.
But what are they discounting now?
A) The long-term (TAIL) of lower-highs on lower volume (bearish)
B) The immediate-term (TRADE) short squeeze (bullish)
C) The ongoing hope that bailouts will earn everyone a year-end bonus sticker
Hope, of course, is not a risk management process. Timing matters. If you bought beta (the Russell2000) in March-April, you’ve lost money. If you bought the wrong stocks (MCD, PCLN, CAT, etc.) in March-April, you’ve lost a lot of money.
This morning you either buy or sell. And I think that if you buy beta today (SPY or IWM – pick your major US index), come September-October, you’ll lose a lot more money too.
Rule #1, don’t lose money.
Rule #2, don’t forget Rule #1.
Rule #3, don’t smoke Grass Money when central planners are trying to have you forget Rules #1 and #2.
My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and the SP500 are now $1603-1624, $108.03-113.18, $81.72-82.64, $1.22-1.24, 788-803, and 1386-1408, respectively.
Bes of luck out there today,
Keith R. McCullough
Chief Executive Officer