Takeaway: We are at a critical crossroads in America right now.

“The physicists have known sin; and this is a knowledge which they cannot lose.” -Robert Oppenheimer

Do you have introspective accountability?

Six decades or so ago, shortly after he began to fully grasp the unspeakably fearsome reality of the nuclear weapons he helped unleash, Robert Oppenheimer—“The Father of the Atomic Bomb”—became a rather unpopular man with the U.S. government.

Time to Taper! - atomb1

After provoking the ire of politicians with his outspoken opinions during the Second Red Scare, Oppenheimer’s security clearance was revoked in a much-publicized hearing in 1954, and he was effectively stripped of his direct political influence.

Oppenheimer once remarked that his creation brought to mind words from the Bhagavad Gita: "Now I am become Death, the destroyer of worlds." In essence, Oppenheimer ultimately held both himself and the government to account.

Now stop for a moment and ask yourself: Can you imagine a central planner of the Bernanke epoch holding themselves accountable for the highest levels of food, energy, education, etc. inflation in world history?

Most likely, the answer is no. That would require an incredibly uncomfortable un-spinning of the truth.

And the truth is that American “political scientists” who systematically engaged in devaluing the purchasing power of the American people to four-decade year lows in 2011 know that sin. It is market knowledge that history will not soon forget. Facts don’t lie, politicians do.

If you’ve ever sat across the table from me and my macro research team during the monetary mayhem and tumult of these last few years, you’ll know that I refuse to have a debate about mean reversion risks without contextualizing the post-Nixon low in the world’s reserve currency.

Time to Taper! - km1

  1. Got Causality? Of course, when a country cuts rates to zero then whispers to everyone front-running their next move that zero really isn’t zero (for Bernanke 0 = 0 minus 1, 2, 3, 4? QE5?), its currency goes down, hard.
  2. Post Nixon (i.e. post his devaluing the Dollar by abandoning the Gold Standard in 1971, purely for political gain), the US Dollar Index has never seen a lower-low versus the 2011 low. Surprise, surprise. That’s also when gold hit its all-time high.

Since most global commodities settle in Dollars, why there’s been raging inverse correlation (Dollar Down = Commodities Inflation Up) alongside causality in this relationship is trivial to everyone other than the people who should be held responsible for it.

What is less trivial is all of the unintended consequences associated with the ultimate central planning sin (an un-elected overlord confiscating the purchasing power of The People). Here are some of the big ones:

  1. Commodity Bubble
  2. Bond Bubble
  3. Emerging Market Bubble

Yep, that’s going to be a lot for Bernanke’s children (and theirs) to noodle over for the next century. That is, of course, unless the next guy or gal running the un-elected agency does what no modern Federal Reserve Chairman has ever not done – raise rates.

For the last year or so, I’ve spent a considerable amount of time ranting about these Global Macro Themes:

  1. Commodity Deflation
  2. Rising Interest Rates
  3. Emerging Market Outflows

These are relatively easy long-term risk calls to make because all three of them are basically about unwinding all three of the aforementioned bubbles.

Once prices stop making all-time highs (commodities, bonds, or currencies), there’s this big little risk management critter Ben Bernanke has never mentioned under oath called asymmetry.

Time to Taper! - ben1

So, at this stage of the cycle this is what you get:

  1. US Dollar making a series of intermediate-term TREND higher-lows (off her all-time lows in 2011)
  2. US Interest Rates making a series of intermediate-term TREND higher-lows (off their all-time lows in 2012)
  3. Gold and food prices making a series of intermediate-term TREND lower-highs (off their all-time highs of 2011-2012)

All the while, what we still get from the consensus TV circus that is “Government Access Media” is a bunch of uninformed people begging for more of the drugs that the political scientists got rich selling us.

If I am not clear on my long-term policy view, let me state it plainly – stop devaluing the Dollar. Stop trying to smooth economic gravity. Stop the monetary madness. Start tapering. Now.

If you ever want to see US growth expectations come back (yes, markets and business run on expectations, fyi), you have to let the US Dollar come back and let rates rise right alongside her.

Just this morning, we received additional support that the economy doesn’t need any more of the Fed’s monetary amphetamines. In case you missed it, the US jobless claims trend is near a six-year low. Meanwhile, Q2 US economic growth was revised up to a 2.5% annualized rate.

What will it take to get the Fed out of the way once and for all?

We are at a critical crossroads in America right now. Unwinding the monetary sin embedded in Bernanke’s post 2012 Jackson Hole policy is what markets have been doing for 10 months.

Collectively, we either have the responsibility within all of us to rise up against the tyranny of easy money and currency debauchery, or we do not. At this point, I can only hope the people who voted for this government hold it to account.

Robert Oppenheimer eventually got it. He had introspective accountability. The $3,600,000,000,000 question is whether Ben Bernanke ever will.