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This note was originally published at 8am on October 08, 2012 for Hedgeye subscribers.

“America feels broken.”

-Chris Hayes

That about sums it up. That’s the opening line to what I’ve found to be a surprisingly thought provoking book just published by MSNBC’s Chris Hayes, Twilight of The Elites.  Hayes is not Chris Matthews. He’s half his age, and he has much better hair.

Hays also has a much more balanced approached in attempting to explain the sometimes un-explainable - the zeitgeist of the US Political Economy: “Over the course of the last decade, a nation accustomed to greatness and progress has had to reconcile itself to an economy that seems to be lurching backwards.” (page 1)


That’s why people got so fired up about the Jack Welch suggestion about the US jobs report on Friday. Conspiracy theories are no longer conspiracy theories when they are proven to be true. The truth is that we have both a failed Keynesian spending jobless recovery and money printing induced inflation. Any government “report” suggesting otherwise only perpetuates The People’s distrust.

The other thing I like about Hayes is that he actually thinks about what I attempt to explain every morning from a completely different perspective. He grew up in the Bronx and was a Philosophy major at Brown. In Chapter 1 of his book he introduces the framework of “Insurrectionists and Institutionalists.” I am one of the former, and appreciate his making up a word for those I criticize as the latter.

“Whatever my own insurrectionist sympathies – and they are considerable – I am also stalked by the fear that the status quo, in which discredited elites and institutions retain their power, can just as easily produce destructive and antisocial impulses as it can spur transformation and reform… when people come to view all formal authority as fraudulent, good governance becomes impossible.”

Again, that’s why what Welch said is still driving the “institutionalist” media batty again this morning – but they are missing the point. Hayes nails it, calling this a “Crisis of Authority”… and the longer it “persists, the more it runs the risk of metastasizing into something that could threaten what we cherish most about American life: our ability to self-correct.” (page 29)

Back to the Global Macro Grind

It’s not my job to be a Bull, Bear, Republican or a Democrat. My job is to empathize with both sides of the debate, and attempt to probability-weight which way the crowd will lean in and around those polarized perspectives. If you listen to both sides closely enough, you can actually hear that both make some great points.

Last week, the US Dollar was down for the 1st week in 3, so stocks and commodities were up. That’s not a political point. That’s just what’s happening today in markets. They are completely correlated to currency moves. Hugo Chavez has nailed this inasmuch as both Bush and Obama did – he devalued his currency, stocks ripped another +31% higher last week to +245% YTD, and boom – re-election!

Even if you don’t have an education, you probably get the math – if I devalue what’s in your pocket, you can buy less of what you need with what’s left in your pocket. From 1920’s Germany to Charles de Gaulle in France, Policies to Inflate have been around for a lot longer than polarized journalists attempting to spin easy money any other way.

But what do we do when all that asset price inflation deflates?

  1. We get Bernanke to call it what 21% of people in France suffer from (depression)
  2. We beg and plea for more bailout policies to re-flate
  3. We say “it’s different this time”, just so we can feel better about it

All the while, economic gravity has proven to bite both Democrat and Republican politicians in the behind. Politicians have never been able to “smooth” either the Global Growth or US #EarningsSlowing cycles – and this morning, we have to once again deal with both.

At 130PM EST, Daryl Jones and I will host our Q4 2012 Global Macro Themes Conference Call (email Sales@Hedgeye.com for access) where we’ll take a closer look at the following intermediate-term TREND to longer-term TAIL risks:

  1. Earnings Slowing – what does it mean when corporate margins are coming off all-time peaks?
  2. Bubble #3 – what do Bernanke Bubbles (Commodities) do now that he’s out of communication bullets?
  3. Keynesian Cliff – what happens if the USA bonks the Debt Ceiling before The Cliff?

Sadly, some of these themes are political. That’s a direct function of our governing elite fundamentally believing that they are the solution (rather than the cause) to our economic problems.

Both Neil Barofsky (Democrat author of Bailout) and Sheila Bair (Republican ex-Chairperson of the FDIC) have recently called the likes of Timmy Geithner out in their tell-all books about the reality of our situation. The problem with government is government itself.

America isn’t broken; your trust in your government is.

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1755-1776, $108.44-112.45, $79.24-80.25, $1.29-1.31, 1.59-1.74%, and 1447-1464, respectively.

Best of luck out there this week,


Keith R. McCullough
Chief Executive Officer

Broken America? - Chart of the Day

Broken America? - Virtual Portfolio