Human Action

This note was originally published at 8am on December 10, 2012 for Hedgeye subscribers.

“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:

  1. FRANCE Industrial Production growth for OCT = down another -1.1% (after a -2.5% drop in SEP)
  2. ITALY GDP Growth = down -2.4% year-over-year for Q3 of 2012
  3. 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:

  1. To restore its competitive advantage as one of the last standing free-market economies
  2. 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:

  1. CRB Commodities Index (19 commodities) = down another -1% wk-over-wk (down -8.4% from the Bernanke SEP Top)
  2. Brent and WTIC Oil prices = down another -3.7% and -3.3% wk-over-wk, respectively
  3. 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:

  1. CFTC Futures & Options contracts (betting net long commodities) = down -3.4% on the week to 898,000 net long positions
  2. Gold saw net long positions get hammered by the most since March = down -25% wk-over-wk to 127,000 net longs
  3. 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 $1684-1713, $106.51-109.53, $80.11-80.67, $1.28-1.30, 1.58-1.65%, and 1406-1419, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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