This note was originally published at 8am on August 15, 2012 for Hedgeye subscribers.
“Fair is foul, and foul is fair.”
-Witches, Act 1, scene i
Today in 1057, Macbeth died. This global stock market, meanwhile, is quietly channeling its inner Shakespeare. Tragedy.
How else can you explain markets that are being cheered on to whoever will listen to the complete opposite of what the bull case was for stocks in March? What does it mean when markets go up for 6 straight weeks on no volume, and no one cares?
Fair economic news is now seen as a headwind for stocks and commodities, because the real bull case from here is foul.
Back to the Global Macro Grind…
Foul? Indeed. If the bull case for America is more debt, inflated food/energy prices, and bailouts from policies that perpetuate #GrowthSlowing, that’s got a nasty short-term smell to it. It reeks of one of the darkest tragedies in US economic history - the inability of American leaders to learn, change, and evolve our policy making process.
Headline: “Romney/Ryan See Fed QE As Inflation Risk”
Really? C’mon now white boys – stop scaring the gold bugs. You may as well throw granny off her wheel chair while you are at it. There hasn’t been a Republican or Democrat ticket that has explained the relationship between a country’s currency and its People’s Purchasing Power since Margaret Thatcher taught us how to wear the conservative economic leadership pants.
Upward and onward with your centrally planned day…
The SP500 hasn’t gone up for 2 days, primarily because the US Dollar stopped going down for the last 2 days. China didn’t provide begged-for stimuli, Eurocrats are on vaca, and USA is about to have a real economic debate.
Is that Fair or Foul? And, for who?
- It’s foul for anything that’s highly correlated to what the US Dollar does in the immediate-term
- It’s fair for those of us who still believe in a free market’s ability to price all of our emotional baggage
Can the US stock market handle another 1% down day? How about another 10% draw-down like we saw from the March top to the June lows? All I can tell you is that yesterday’s -0.25% move “off the highs” felt like 1 ton of dog doo in a 10lb bag.
That’s what happens to a market that’s pinned up on short covering, has zero inflows, and is plainly hoping for another plan out of central casting. Once the shorts have all covered, short-term political tragedy is back in play.
If you don’t think Draghi, Rajoy, and Obama have some serious skin in the “but the market is up game” you are, at a bare minimum, unaware of what’s really going on backstage in this world’s political market theater. If you do, you’re probably like me – expecting the foulest of foul political moves to keep markets propped up.
“Fortune, on his damned quarrel smiling,
Showed like a rebel’s whore.”
-Captain, Act I, scene ii
In other news:
- Chinese stocks dropped another -1.1% overnight and are down -2% for the wk as growth continues to slow
- Spanish stocks are down this morning after making lower-highs versus their August 7-8 short squeeze top
- Russian stocks are down -1.3% this morning as Oil struggles to make new highs (US Dollar up)
- CRB Commodities Index failed to overcome long-term TAIL risk resistance (307)
- Dr. Copper continues to be a card carrying Chinese growth slowing party member (Bearish Formation)
- US Treasury Bond Yields are debating the growth bulls as to whether or not this time is really different
For central planners attempting to “smooth” economic gravity, to grow, or not to grow – remains the question.
My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and SP500 are now $1597-1611, $110.98-115.33, $81.88-82.98, $1.22-1.24, 791-803, and 1396-1406, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer