“Nations stumble upon establishments which are indeed the result of human action…”
That’s a simple but appropriate quote for central planners to noodle over this morning. It comes from Adam Ferguson’s economic history work that is cited by Ralph Raico in the book I am currently studying, Classical Liberalism and the Austrian School (pg 27).
Human Action, of course, wasn’t Hayek – it was the title of Ludvig von Misses’ magnum opus in 1949. If you want to begin to attempt to understand the difference between Keneysian and Austrian economics, start there.
Inasmuch as there are some differences between Bernanke and Krugman, there are between von Misses and Hayek as well. In the former versus the latter, we are talking about derivatives of centrally planned versus free-market based economic ideologies.
Back to the Global Macro Grind…
France, Italy, and Japan are “stumbling upon establishments” (Hayek) of Keynesian economic policy decisions again this morning:
- FRANCE Industrial Production growth for OCT = down another -1.1% (after a -2.5% drop in SEP)
- ITALY GDP Growth = down -2.4% year-over-year for Q3 of 2012
- JAPAN GDP Growth = down -3.5% QoQ SAAR for Q3 of 2012
I know. It’s too bad all 3 of these centrally planned economies are out of bullets and couldn’t jack up government spending like the USA did (+9.5% annualized government spending ramp in Q312). Maybe that’s why Italy’s Super Mario Monti says ‘I’m out!’
On the globally interconnected risks associated with sovereign Debt & Deficit Spending, as the late Milton Friedman said in 1991, maybe “there’s only one thing left to do: fight.” On that score, instead of being taxed by the #PoliticalClass and signing off on an unlimited US Debt Ceiling, at least some Americans still look ready to stand up for their individual liberties.
But what if the USA gets a debt/deficit deal? Short-term, I assume stocks will rip. But, in the long-run, what will happen to the US economy? What will happen to your children’s liberties?
In the long-run, for America to achieve sustainable economic growth, it needs:
- To restore its competitive advantage as one of the last standing free-market economies
- To resuscitate the credibility of her hard earned currency – the world’s reserve currency
The #PoliticalClass, of course, thinks they only get paid if we don’t get what we need. Then they perpetuate pinning us all against one another via class, gender, and race warfare.
The good news last week was that the government got out of the way. There was no fiscal deal. There was no Ben Bernanke decision to print to double-infinity and beyond either.
With the US Dollar up +0.35% on the week, you also got a real-time tax cut:
- CRB Commodities Index (19 commodities) = down another -1% wk-over-wk (down -8.4% from the Bernanke SEP Top)
- Brent and WTIC Oil prices = down another -3.7% and -3.3% wk-over-wk, respectively
- Corn = down another -2% wk-over-wk (down over 12% from all-time highs in 2012)
At the same time, institutional investors betting that the USA becomes more like France got sacked for the 1st week in the last 3:
- CFTC Futures & Options contracts (betting net long commodities) = down -3.4% on the week to 898,000 net long positions
- Gold saw net long positions get hammered by the most since March = down -25% wk-over-wk to 127,000 net longs
- Wheat got crunched for another -20% wk-over-wk drop in net long positions = down to 34,000 net longs
People who drive to work and eat throughout the day loved it; institutions long inflation didn’t. Last week’s net long positions in farm goods fell -10% wk-over-wk and are down almost 50% from their 2012 all-time highs (Wheat’s net long position is down -57% from its all-time high).
Get the government out of the way, and you’ll take expectations for asset price inflation in food and energy prices away. That’s something that you don’t hear out of Bernanke and Geithner do you? You’d think Obama’s “middle class” warfare thing would pick up on the marketing opportunity as well. Not.
And that’s really sad because our Human Actions should be better than that. On government policy orders, the difference between Hayek and Von Mises was actually that Hayek was more socially liberal. “For the tradition that Hayek recommends, on the contrary, such order is best understood as coming about through a process of adaptive evolution.” (Raico, page 27).
And that’s all I have to write about that. Short commodities on green and buy consumption on red until we really make this Italy.
Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $106.51-109.53, $80.11-80.67, $1.28-1.30, 1.58-1.65%, and 1, respectively.
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer
The Macau Metro Monitor, December 10, 2012
NEPTUNE BOSS SAYS JUNKETS NOT INVOLVED IN CRIME Macau Business
Nicholas Niglio, CEO of Neptune Group Ltd, dismisses rumors that junket operators in Macau are involved in illegitimate businesses. “They [the promoters] will not give up their credibility for such a small return from illegal activities,” he added, noting the junket activity in Macau is regulated and governed by the Gaming Inspection and Coordination Bureau. As of June-end, Neptune controlled 51 VIP tables. Around 2,000 licensed agents work for these tables.
Niglio also said that the VIP sector in Macau is now facing a consolidation period. “It is time for industry consolidation as small junket promoters are gradually absorbed by mid-sized ones.”
VIP GAMING TO STAY STABLE IN 2013: FRANCIS TAM Macau Business
Secretary Tam said he had not heard anything about any possible restrictions to be imposed by Beijing that could affect the city’s VIP gaming sector. “We expect that the VIP gaming business will enjoy stable development in the coming year,” said Tam. The secretary was commenting on rumors that plans by the mainland authorities to strengthen their fight against money laundering and corruption will affect the casino industry.
OKADA EYES CASINO DEAL IN SOUTH KOREA Macau Business
Universal Entertainment Corp last week announced that it has signed a non-disclosure agreement with the Shinsegae Group of South Korea. “The agreement was signed in preparation for commencing discussions regarding the commercial facilities at the casino resort complex development project at Yeongjongdo Island, Incheon, Korea being undertaken by the Shinsegae Group,” Universal Entertainment said.
Daily Trading Ranges
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TODAY’S S&P 500 SET-UP – December 10, 2012
As we look at today's setup for the S&P 500, the range is 13 points or 0.85% downside to 1406 and 0.07% upside to 1419.
SECTOR AND GLOBAL PERFORMANCE
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 1.37 from 1.38
- VIX closed at 15.9 1 day percent change of -4.10%
MACRO DATA POINTS (Bloomberg Estimates):
- 11am: Fed to buy $1.5b-$2.25b notes due 2/15/36-11/15/42
- 11:30am: U.S. Treasury to sell $32b 3-mo., $28b 6-mo. bills
- 12:45pm:Bank of England Governor King speaks at Economic Club of New York
- President Obama to deliver speech in Detroit to promote his federal budget deficit plan
- FDIC Systemic Resolution Advisory Committee meets to discuss Title II of Dodd-Frank Act
WHAT TO WATCH
- Obama, Boehner held private meeting at White House on budget
- Greece extends deadline for debt buyback after nearing target
- Canada’s approval of $20b energy takeovers may spark more foreign investments
- Dragon Systems founders take Goldman to trial over advice
- SEC said to investigate SAC Capital’s trading in Intermune and Weight Watchers
- Apple, Google team up for $500m-plus Kodak patents bid
- AIG sells ILFC majority stake to Chinese investors for $4.23b
- Japan sinks into recession as opposition leader Abe calls for more stimulus
- China’s exports rose less than forecast in November
- Ingersoll-Rand said to plan share buyback, asset spinoff
- Apple/Samsung ruling on U.S. phone sales may come this week
- Wanxiang outbids Johnson Controls for most of A123 assets
- Suntory weighs takeover of whiskey maker Beam, official says
- Mattel returns to appeals panel that threw out Bratz verdict
- ‘Skyfall’ reclaims top spot with ticket sales of $11m
- Ferrellgas Partners (FGP) 7am, $(0.23)
- John Wiley & Sons (JW/A) 8am, $0.82
- Casey’s General Stores (CASY) 4pm, $0.85
- Teavana Holdings (TEA) 4:01pm, ($0.01)
- Greif (GEF) 4:07pm, $0.55
- ABM Industries (ABM) 5pm, $0.40
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Oil Rebounds as German Exports Advance; OPEC to Meet in Vienna
- Speculators Cut Bullish Bets on Fiscal Cliff Talks: Commodities
- Japanese Aluminum Fees Said to Decline for First Time in a Year
- Gold Gains in London on Drop to One-Month Low, Stimulus Outlook
- Copper Reaches 7-Week High as Chinese Industrial Output Expands
- Corn Falls to Three-Week Low as South American Outlook Improves
- Sugar Declines on Indications of Ample Supplies; Cocoa Slides
- Gold Set for Retreat on Momentum Indicator: Technical Analysis
- China Crude Imports Rise to Six-Month High as Oil Refining Jumps
- Tin Shipments From Indonesia Drop for First Time in Three Months
- Iron-Ore Exports From Australia Jump to Record on China Recovery
- Palm Oil Stockpiles in Malaysia Climb to Record as Exports Drop
- Japan Suspends Beef Imports From Brazil on Mad-Cow Disease
- Hedge Funds Quit U.S. Natural Gas as Cold Fades: Energy Markets
USD – 1st up week in 3 for the USD last week punished Commodity prices, and we liked it. Oil in particular is back into a Bearish Formation after snapping TRADE support of $109.63 Brent; TREND in USD is higher, not lower (up for 8 of last 11 weeks), so we’ll see if getting a cliff deal strengthens it further – not clear on that yet either way.
ITALY – Monti probably took a peek at down -2.4% y/y Q3 GDP growth and said we’re out! So is whoever bought last week’s lower-highs in Italian equities; MIB index down hard (-3.4%) moving back below 15,615 TRADE support and back into a Bearish Formation – risk happens fast.
CHINA – Chinese stocks moved out of crash mode putting on a +4.1% move last week and saw +1.1% follow through this morning back about my TRADE line of 2039 support (Shanghai); that was bullish, and so was NOV Industrial Production growth (10.1% vs 9.6% in OCT) and Retail Sales (+14.9% vs 14.5%); CPI rose to 2% from 1.7% only neg news.
The Hedgeye Macro Team
This note was originally published at 8am on November 26, 2012 for Hedgeye subscribers.
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