This note was originally published
at 8am on October 22, 2013 for Hedgeye subscribers.
“Look forward all the time.”
That’s what T.E. Lawrence, aka Lawrence of Arabia, wrote home to his Mom at Christmas time in 1915. He’d just lost two of his British born brothers to WWI within the span of 5 months. He was only 27 years old.
On the road, on your own, no one teaches you to look forward in life. You have to learn that lesson yourself. Been there, done that. I left home when I was 16 years old. And for me at least, looking forward has always been born out of adversity, failure, and loss. That’s my only way out.
Context at life’s crossroads is critical. Lawrence needed to become the change he wanted to see in his world. “In the 11 months since he had arrived in Cairo, he had largely been confined to a suite of offices in the Savoy Hotel, a world away from the Western Front…” (Lawrence in Arabia, pg 149). Few in Middle Eastern history decided to look forward like he did in 1916. That’s why he’s remembered.
Back to the Global Macro Grind…
When you don’t believe in the central-planning command of an economy, it’s really hard to look forward. In fact, I’ve had to fight off my personal confirmation bias that Bernanke is going to wreck whatever is left of our said “free-market” for the better part of a year now – not buying Gold or Bonds on any of these “pullbacks” has been a personal victory. I was tempted.
That’s why I’m using the T.E. Lawrence analogy. He didn’t believe in “mother” (British Military Command) any more than I believe in the US Federal Reserve. I certainly don’t think I’m going to save the world taking on these received wisdoms, but I don’t think my son or daughter will read about me standing down to un-elected and unaccountable tyranny either.
Scott Anderson starts off Chapter 7 of Lawrence in Arabia with a now infamous British Military quote from the Director of Military Intelligence in 1916:
“It seems to me that we are rather in the position of the hunters who divided up the skin of the bear before they had killed it. I personally cannot foresee the situation in which we may find ourselves at the end of the war, and I therefore think that any discussion at the present time of how we are going to cut up the Turkish Empire is chiefly of academic interest.”
-General George McDonough
In other words, the tyranny of government is in the certainty it assigns to the outcomes of its policies. Allowing government to A) trash your savings accounts and B) burn your currency pays the wealthy and punishes the poor.
Ben Bernanke has no business promising the “folks” in America’s heartland that 0% rates of return on their hard earned savings accounts will result in economic prosperity. He should be held in contempt for fear-mongering Americans out of tapering too.
So what will today’s employment report bring?
With Bernanke bought and paid for by the bond bull lobby, does it matter? I have no idea what this guy is going to unilaterally decided in spite of the data. That’s because he’s politicized; not data dependent.
With that accepted, all I can do today is look forward. I can only react to Mr. Market’s read-through on what today’s employment data means. In order to do that, I’ll be focused mostly on the following 3 things:
- US DOLLAR – will it hold its long-term TAIL line of $79.21 support on the US Dollar Index (DXY)
- US BONDS – will the 10yr US Treasury Yield’s intermediate-term TREND line of 2.57% hold?
- GOLD/OIL – will the Bernanke Burning Buck trades of the century continue to come unglued?
Other than in Bernanke’s ideological world, the first 2 things are trivial pro-growth signals. As economic growth stabilizes then accelerates (provided that an un-elected central planner doesn’t try to arrest them) the currency and sovereign yields of a country rise. When gravity isn’t banned, this is called an economic cycle.
The 3rd thing is less obvious. That’s because a lot of people in high places get paid by Gold and Oil inflation via a US Policy to Devalue its currency. So how are those Bernanke Gold and Oil bubbles doing this morning?
- GOLD – down again to $1312 and still crashing for both the YTD and from the all-time USD low (-22% and -30%, respectively)
- OIL – after snapping our long-term TAIL risk line of $101.37 this past wk, WTIC is still crashing (-30% since 2008)
I know, I know. Bernanke said his whispering to #OldWall in the summer of 2008 that he was going to “cut to zero” had nothing to do with that all-time high in oil that’s priced in the Dollars.
I know, I know. After multiple whisperings of multiple QEs in 2011 where the US Dollar was pulverized to an all-time low, Gold hitting it’s all time high must have been pure irony.
Then came the all-time high in food prices (2012), and the rest is history. According to Bernanke self-serving fictional account, there was “no inflation” at the all-time high in global inflation (in Dollars) in 2011-2012, so now we’ll have Dollar based deflation in commodities and debt, and he’ll have nailed it, right?
Not so fast. Even though deflation in commodity prices pays the consumer via a real-inflation-adjusted tax cut at the grocery store and at the pump. And even though #RatesRising gives frugal bastards like me who have a starved savings account some risk-free fixed income too – Bernanke says no.
No, no, no “folks” – not now. But Ben, if you won’t taper and give us our currency back now, will you ever? Or, from here, is this no longer within your control? Interestingly, but maybe not surprisingly, Mr. Market is already tapering that answer for the perma bulls in Gold, Oil, and Bonds in real-time. Markets look forward; central planners don’t.
Our immediate-term Risk Ranges (all 12 are in our Daily Trading Range product) are now as follows:
UST 10yr Yield 2.57-2.69%
WTIC Oil 98.12-101.37
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer