This note was originally published at 8am on September 12, 2012 for Hedgeye subscribers.
“History doesn’t repeat itself, but it does rhyme.”
Some prominent Western academic economists (Keynesians) tend to go with the “feel” thing on US and Global GDP growth. It “feels like 3-4%” is something that we’ve heard almost every year since 2006.
So how does it feel to you? To me, if I had to make a call on it, it definitely feels like it’s September. It feels like the sun probably rises in the East this morning too. On the year-to-date thing, I’m not sure if it feels like 1987, 2007, or 2008.
In September of all those years, something was different. In September 2007, growth slowed and companies started to miss. In September 2008, expectations ramped for a bigger and bigger Paulson bazooka bailout. And for those of you who remember what came after September 1987 (October 19th, down 23% in a day), it was just a blip, because stocks did close “up year-to-date.”
Back to the Global Macro Grind…
If you boil down all 3 of those periods, in terms of isolating central planning expectations, it’s tough to not feel anything that rhymes more than 2008. For Hank Paulson, TARP was supposed to be $250B, then $500B, then $800B (by October Paulson was bent over his garbage can). For Bernanke, 0% rates were supposed to run until 2012, then 2013, then on January 25th he had to move the goal posts to 2014.
Now what? Will Buzz Lightyear Bernanke go to 2015, then infinity, and beyond?
Apparently the Europeans will do “whatever it takes”, so why not? It’s only going to get us $130-150 Oil and an even faster Global Growth Slowdown than when Bernanke pushed Oil to $125 (Brent) in February.
Expectations matter. And these central planners will be held accountable for it this time – that’s not different. On that score, here are 3 top headlines (expectations) from Bloomberg.com this morning:
1. “Fed Seen Starting Qe3 While Extending Rate Pledge to 2015”
2. “Stimulus to Reverse Commodity Bull to Bear Fastest Since 2008”
3. “China’s Stocks Advance After Premier Wen Signals Stimulus”
Isn’t this centrally planned market thing exciting! If I’ve written this 100s of times this year, I may as well have written it 1000s and then walked right up close to you in March and yelled it in your ear with a government manufactured mega-phone:
POLICIES TO INFLATE SLOW GROWTH
Whatever the Europeans promised this morning might matter to where the last bottom-up turned macro hedgie capitulates on his European shorts, but it will not change the only thing that will change any of this – economic growth.
Across the board, August inflation data in Europe was as follows:
- France CPI +2.4% (vs 2.2% in JUL)
- German CPI +2.2% (vs 1.9% in JUL)
- Spain CPI +2.7% (vs 2.7% in JUL)
Now, remember, the Spanish government just admitted to making up their GDP growth numbers for the last few years, so don’t think for a New York day traded minute that they aren’t suppressing real-life inflation on a reported basis like Bernanke does.
What you have now in Europe is called stagflation (growth slows to flat/negative year-over-year while inflation accelerates sequentially month-over-month). Anyone who tells you $116 oil, $7 corn, and $60,000/yr to go to Yale is “deflationary” needs their head read.
To review the core components of our Global Macro Model and why we have had Growth right in 2012:
- Growth is either slowing or rising, sequentially (quarter over quarter)
- Inflation is either slowing or rising, sequentially (month-over-month)
- Policies to Inflate expectations are either rising or falling which, in turn, perpetuates 1 and 2
If you need to know why people who didn’t blow up in 2008 keep flowing out of Equity Funds intuitively get this, look no further than the broken sources perpetuating policy expectations: forecasters at the US Federal Reserve.
In our Chart of The Day, you can see team Bernanke’s forecasting track record on US GDP:
- Pre having to do QE2 at 2010’s low (he thought QE1 was the elixir for growth), he was certain US Growth was going to be 4%
- Post being wrong on what QE2 would do for US employment and economic growth, he kept dropping his estimates
- Currently, he’s been wrong on what QE3 (the January 25th push of 0% to 2014) would do for US Growth by a lot
So, is Ben Bernanke a credible source? Are his academic cronies? Does he have any business perpetuating policy expectations that are built on his forecasted expectations? Or is he just doing more and more of what has not worked, hoping he gets something right?
I don’t know the answer to that last question. But it certainly rhymes with how a lot of bad managers, coaches, and players approach playing at the highest level too. Maybe this time is different, but for those guys it never ends well either.
My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, US Treasury 10yr Yield, Russell2000 and the SP500 are now $1699-1756, $113.92-116.48, $79.74-80.97, $1.26-1.29, 1.68-1.74%, 827-846, and 1419-1445, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer