This note was originally published at 8am on November 21, 2012 for Hedgeye subscribers.
“We do not admire the man of timid peace. We admire the man who embodies victorious effort.”
-Theodore Roosevelt, 1899
As a Canadian immigrant with both an American made family and firm, Thanksgiving in this country has become a very special time for me. It’s a time to pray, give thanks, and reflect.
There are very few, if any, non-Lincoln American Presidential speeches that have impacted me like Teddy Roosevelt’s speech before the Hamilton Club in Chicago in April of 1899. For those of you who have not read it – it’s called The Strenuous Life.
“In speaking to you, men of the greatest city of the West, men of State which gave to the country Lincoln and Grant, men who preeminently and distinctly embody all that is most American in the American character. I wish to preach, not the doctrine of ignoble ease, but the doctrine of the strenuous life; the life of toil and effort, of labor and strife…”
Back to the Global Macro Grind…
Grinding it out in markets, daily, for the last 5 years has been strenuous. But that’s not something to whine about - that’s what I love about this game – the daily grind. As my Dad always used to tell me, “when the going gets tough – the tough get going.”
Whether by indictment, exhaustion, or extinction, one by one we are seeing major players and firms from the #OldWall leave. In many ways, that’s very good news. There are few professions in this country that need to evolve more than this one does. And for this opportunity to be playing on the front lines of change, I am very thankful.
What Americans should also be thankful for this Thanksgiving is deflating in food and oil prices. With 71% of the US economy hinged to the C (Consumption) in the C + I + G + (EX-IM) = GDP calculation, this is where the rubber needs to meet the road back to growth.
While November (and Q412 overall) has been a mess from a US stock market perspective, the US Consumer Discretionary Sector has provided a light at the end of the tunnel that is not another oncoming train. For November to-date, here’s the score on that:
- SP500 (SPY) = down -1.7%
- Energy (XLE) = down -2.4%
- Consumer Discretionary (XLY) = up +0.7%
Oil got hammered yesterday (we covered our short position on red) and, to a degree, I think that’s what stopped US stocks from closing on their lows. Strong Dollar and Down Oil is great for US Consumption expectations heading into the holiday season.
Meanwhile, in Bernanke’s speech to one of the Keynesian Clubs yesterday, he implied that he may very well be out of money printing bullets. Most people don’t believe that. And they probably shouldn’t.
But what would the country do if the man just went away? Would the American life of “toil and effort, of labor and strife” change? Or, for the 90% of us who aren’t paid (politically or implicitly) to maintain asset inflation in food/energy prices finally get some relief?
I think the answers to these very simple questions are simple. And, until we have the free-market spine to face the long standing US economic truth that the American consumption economy runs faster and more sustainably when the things we consume fall in price, our lives will remain more strenuous.
Many disagree with me on that. Many think that Bernanke’s Dollar Debauchery and reflexive, short-term, commodity and stock market inflations will magically create economic growth. But they have not. They have slowed real (inflation adjusted) growth.
On CNBC last night, a US economist by the name of Joe Lavorgna (Deutsche Bank) called my economic views “radical.” Joe seems like a nice guy, but his US Growth forecasts at the end of both 2007 and 2011 for 2008 and 2012, respectively, were radically wrong.
Being wrong is fine – it happens to me all of the time. But not learning from my mistakes would render me useless. To change, you need to evolve your process. You may fail, but people will respect you more for showing them how and why you are changing.
I am many things. I have many faults. But I am not a man of timid peace. If I fail in my assumption that a Strong Dollar will create a Stronger America, I will reluctantly, but transparently, throw in my own towel and hold myself to public account.
If I am right, I will have expected to have won. And you’ll be winning too.
“It’s hard to fail, but it is worse to have never tried to succeed.”
-Theodore Roosevelt, 1899 (The Strenuous Life)
Our immediate-term Risk Ranges for Gold, Oil (Brent), Natural Gas, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1714-1737, $108.89-111.48, $3.69-3.91, $80.87-81.37, $1.26-1.28, 1.55-1.68%, and 1364-1397, respectively.
Happy Thanksgiving to you and your loved ones,
Keiith R. McCullough
Chief Executive Officer