This note was originally published at 8am on December 31, 2012 for Hedgeye subscribers.
“There is little that the ordinary man of today learns about events or ideas except through the medium of this class.”
After spending plenty of time with common sense people (my family and friends) for the last week, I’ve reinforced an entrenched view in my thick hockey skull about America’s #PoliticalClass – they don’t get free-market liberty and/or economics.
By the 1960s, F.A. Hayek thought the same about Europe’s political elite but he was, as Joseph Schumpeter argued “in his review of Hayek’s Road to Serfdom, polite to a fault.” (Classical Liberalism and The Austrian School, page 119).
Particularly when I have to get up at this hour on family vacation, I’m not always polite; especially to politicians who are lying to me. When a Republican is arguing for a new calculation for “chained CPI” and a Democrat for changing the rules to raise the US Debt Ceiling, I’ll call them out for who they are (Hayek called them this first) – “Second-Hand Dealers in ideas.” (The Intellectuals and Socialism, Hayek 1976).
Back to the Global Macro Grind…
Want a deal on the #KeynesianCliff? Here’s the latest deal that encroaches on your liberty:
- SPENDING – after the US government has changed how they calculate inflation 9x since 1996, the Republicans Second-Hand Idea is to cut spending on old people and screw them over with an understated COLA (cost of living adjustment in Social Security). Both Bush and Obama did this with Bernanke – change the calculation for inflation so that there never is any inflation to report.
- DEBT CEILING – right on time with Hedgeye’s forecast that the US would bonk the debt ceiling by the end of December, Geithner “officially warned” Congress of the math (thanks for the early look buds). If you didn’t know why Pelosi wants Obama to have a veto (not having to have Congress vote on raising the US Debt Ceiling beyond $16.394 TRILLION), now you know.
Oh, and then there’s taxes – but who wants to read about #ClassWarfare and taxes anymore anyway? These second-hand Marxist ideas are as old socialism itself. As of this weekend, even the French Court agrees, saying “non, non” on 75% tax rates for les “riches.”
All the while, for the last few weeks (actually US stocks are down for 3 of the last 4 weeks taking December to-date for the SP500 to -1%; SP500 down -4.9% from the September YTD top), people are starting to freak-out about “what the cliff will do to the US recovery.”
Please don’t let these central planners freak you out. Fire them, and let them freak-out.
First Hand Idea: the only sustainable US economic recovery you are ever going to have is through Strong Dollar, Down Commodity Inflation. It worked for Reagan in the 1980s. It worked for Clinton in the 1990s. Keynesian Policies To Inflate didn’t work for Bush or Obama.
On the monetary policy side, getting Bernanke out of the way has helped – now we need to get Congress out of the way. So rise above the couch – and turn your TV off while these people perpetuate a crisis that they created. Don’t pay them a lick of your free time or respect.
To review, since Bernanke’s Top (September 14th, 2012) where he said he’d print to infinity and beyond:
- US Dollar Index = up for 10 of 14 weeks (making higher all-time lows, holding $78.11 long-term TAIL support)
- CRB Commodities Index = down -8.4% (easily the worst performing major asset class in the world over that time-period)
- Gold = down -13.1% in 3 months (yes, real inflation-adjusted economic growth stabilizing is bad for bonds and gold)
Yes, on the margin, that’s what I am talking about – bring on the spending cuts and stick a cap on that US debt clock while you are at it. That’s all good for the US Dollar. What’s good for the Dollar is bad for food and energy prices – that’ll be your real-time tax cut.
Expectations update on Bernanke’s Bubble (Commodities):
- CFTC Futures & Options net long positioning dropped another -11% wk-over-wk to 675,625 contracts
- CFTC net longs are now down -49.6% from their all-time high (1.34 million contracts) in SEP 2012, post Qe4
- Gold’s net long position fell another -9% last week to 101,922 contracts (lowest since August 2012)
As commodity inflation (real-world inflation as opposed to this cochamamy Keynesian concept of “chained CPI”) fell, real inflation-adjusted global growth stabilized. That’s not a Second-Hand Idea. That’s a fact:
- Chinese PMI manufacturing for DEC hit its highest level since May of 2011 (at 51.5)
- Chinese Stocks (Shanghai Composite) closed up another +1.6% overnight (up +15.8% in a straight line in DEC alone!)
- South Korean Inflation (CPI) dropped to a 4-month low in DEC (1st Asian inflation reading for DEC) to 1.4%
Do you think people in Asia who are trying to put food on their family table for the holidays care about what a politicized donkey is doing in D.C. this morning? Get real. They can think for themselves too.
Our immediate-term Risk Ranges (support and resistance) for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1636-1671, $109.71-111.48, $3.51-3.61, $79.52-79.97, $1.31-1.33, 1.70-1.78%, and 1397-1412, respectively.
From my family and firm to yours, we’d like to wish you a happy, healthy, and free 2013,
Keith R. McCullough
Chief Executive Officer