This note was originally published
at 8am on August 29, 2012 for Hedgeye subscribers.
“The fact that this policy failed spectacularly in 1973 did not deter the weak-dollar crowd.”
If my sell-side competition thinks I am going to back down on how Dollar Debauchery has perpetuated the US and Global Economic slowdown via commodity inflation in 2012, they better think again.
The Weak Dollar Crowd’s case for “strong exports” and an “up market” (on no volume or fund flows) is weakening. The Strong Dollar, Strong America solution I introduced in December 2011 (when I was bullish on US growth and stocks) is strengthening.
Make no mistake, I am at war with the Keynesians – it’s what Jim Rickards has coined the Currency War, “The Making of The Next Global Crisis.” Jim will be doing a conference call with our Global Macro Team today at 11AM EST (email sales@Hedgeye.com for access).
Back to the Global Macro Grind…
With a Navajo chant, shots were fired from New Haven on August 16th, 2012. That’s when we said sell stocks and buy bonds. If the Weak Dollar Crowd bought stocks at 1426 SPX and sold bonds with the 10yr US Treasury yield at 1.89%, they should feel shame.
But they don’t. In fact, some of these strategists and economists from the Old Wall are shameless. That’s not being rude – that’s the truth. How else should I describe their March 2012 consensus US and Global GDP estimates being off by 45-70%?
Oh, but “stocks are up” for the YTD, so you don’t have to get anything fundamental right about growth or how money printing infects it to take a half-baked victory lap in this business at short-term tops, right?
That’s ending folks. The People don’t trust broken sources. Market volumes speak louder than their words.
Got data to support the Weak Dollar Crowd weakening?
- GROWTH: this morning you’ll get Q2 2012 US GDP growth reported down at least 60% from where it was in Q4 2011 (4.10%)
- INFLATION: real-time inflation that drives down real (inflation adjusted) Consumption Growth is ripping, sequentially, in August
- CONFIDENCE: yesterday’s US Consumer Confidence number for August was down -8% month-over-month vs July’s 65.9 reading
That’s right “stocks are up” fans, the US stock market is up over +2% for August… and the American People don’t care. That’s because of the math – when Growth Slows and Inflation Accelerates, real consumers get squeezed.
Pardon? What happened? Why didn’t people forget about needing to be up +13% (from here in the SP500) to get their 401k super stock market allocations back to break-even? Didn’t they make a 100% equity allocation to the AAPL ETF?
This isn’t funny anymore. Neither were the 1970s.
In the 1970s you had a less politicized version of Ben Bernanke (Fed Chief Arthur Burns, who didn’t do the TV and print thing) work towards Dollar Debauchery and Debt Monetization under both a Republican and Democrat boss (Nixon and Carter).
Today, it’s worse – and not because Bernanke did the same for Bush/Obama – more so because the Europeans have their own currency this time and are trying to do precisely what the Japanese did.
Overlay those conflicted and compromised political policy “plans” driving the Dollar, Yen, and Euro with what #BailoutBeggars are asking the Chinese to do next (“PRINT LOTS OF MONEY” – Paul Krugman to Japan 1997), and the weakness of the weak is looking weaker.
It’s not different this time. Currency Wars have always been global. Rickards will expand on that with us today.
In other news this morning:
- Chinese stocks fell another -1% last night, right back down to their YTD lows (-16.5% since May)
- Indian and Indonesian stocks both snapped their immediate-term TRADE lines of support, down -0.6% and -1.4%, respectively
- EuroStoxx50 finally broke its immediate-term TRADE (squeeze) line of 2466
- Germany’s DAX and Spain’s IBEX sliced through their respective TRADE lines of 7016 and 7416 as well
- Russian stocks lead decliners, down -1% this morning (down -19% from the March #GrowthSlowing top), with Oil down
- Spain’s 5yr CDS just peeked its head back over the 500 line (1st time since August 13th)
- Gold failed at its long-term TAIL risk line of 1679 resistance, again, and continues to make lower-highs
- 10yr US Treasury Yields have effectively collapsed (-14% in less than 2wks) back down to 1.62%
- US Treasury Yield Spread (10yr – 2yr) is down 18bps since our call on August 16th to buy bonds (that’s a lot)
- Draghi wrote an Op-Ed about something I can’t understand
This globally interconnected gong show of central planning rumors still looks Too Big To Bail to me. Weak (failed) policy makers are looking weaker. Strong real-time risk management processes are getting stronger.
My immediate-term risk ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, 10yr UST yield, and the SP500 are now $1648-1679, $111.54-113.98, $81.11-81.96, $1.24-1.26, 1.58-1.65%, and 1402-1419, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer