This note was originally published at 8am on October 09, 2012 for Hedgeye subscribers.
“The outcome of action is always uncertain. Action is always speculation.”
-Ludvig Von Mises
Conflicted and compromised governments have been rolling the bones on tax payer dollars for centuries. It’s just the 21st century where they’ve really started to speculate with some serious leverage.
It won’t end well. And they probably know that. But do they care? Or, more importantly, will they be around when it matters? The concept of accountability doesn’t dawn on these people as a primal fear.
So, with the following as one of the most read headlines on Bloomberg this morning: “IMF Sees Alarmingly High Risk of Deeper Global Slump”, what does the IMF suggest governments do about it this morning? More of what has not worked; must do more.
Back to the Global Macro Grind…
Speculative Governments in the West are promising The People something very different than what a Hayekian or Chaos Theorist would – certainty. What they should be doing is embracing uncertainty. That would be a nice start towards getting back to the truth.
The truth is that Big Government Interventions are doing precisely the opposite of what central planners said they’d do. The following 2 are the most glaring when it comes to structurally impairing economic growth:
- Piling more sovereign debt-upon-debt
- Suggesting Policies To Inflate aren’t inflationary
There’s another headline this morning about $5 gas in California – but, if you look at what le gas costs in Paris, there’s absolutely no inflation. Ask Ben Bernanke. He’s got the conspiracy theory about prices at the pump not being what you think they are down cold.
If you live in Italy (unless you are one of the many 30-40 year old men still living with their Mammas) you’re out in the cold this morning. Even if you believe the Italian government’s version of the truth, here’s the deal on that:
- Italy’s GDP growth slowing -0.8% sequentially to down -2.6% year-over-year
- Italy’s consumer price inflation (un-adjusted for things you actually consumer) is still +3.4% year-over-year!
How’s the Bailout Beggar model treating everyone now? Wasn’t the Keynesian “multiplier effect” on all those Euros supposed to help in the whole living large thing? When your cost of living is out-running your economic growth, you’re stagflating.
Stagflation? Shh! Bad word says Krugman. He and The Ben Bernank don’t believe in that. They can “smooth” that. They believe that if you inflate commodity and stock market prices you will, at some point, reach “escape velocity” from economic gravity.
How’s that been going since the September ECB and Fed printing to Infinity & Beyond?
- Italian stocks (MIB Index) have corrected by -6.5% to 15,540 and failed to re-capture the flag of TAIL risk support
- Spanish stocks (IBEX Index) have corrected by -5.1% to 7,809 and failed to re-capture the flag of TAIL risk support
- But “US stocks are up double-digits year-to-date”
Yep. So the storytelling goes. It feels like yesterday that the SP500 was “up double-digit year-to-date” in October of 2007. That’s when both Growth and #EarningsSlowing were becoming as obvious as they are today (ratio of SP500 companies pre-announcing on the downside/upside = 4.33; highest since Q3 of 2001).
October of 2007 was also when Perma Bulls kept saying Bernanke was going to “cut rates” and we were going to have some “shock and awe.”
Oh bro, did we ever get both!
With the SP500 only down -1.3% since the Bernanke Top (September 14th, 2012), everything in lah-lah land must be fine, no? US stocks aren’t outperforming Venezuelan stocks, but they are definitely beating up on these speculative Europeans.
Or are they?
- Apple (AAPL) = down -9.1% since its performance-chasing top of $702 (September 19th, 2012)
- Tech (XLK) = down -3.6% since September 19th, 2012
- Commodities (CRB Index) = down -4.6% since the same Bernanke Top
It’s a good thing there’s no one in the US who bought AAPL or Oil up there.
Speculative markets are what they are. They are not new. But Speculative Governments driving speculative expectations about growth and asset price inflation that turn out to be completely wrong at least two-thirds of the time? Now that’s special.
My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1755-1779, $108.83-112.71, $79.21-80.18, $1.28-1.30, 1.59-1.74%, and 1448-1464, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer