This note was originally published at 8am on October 24, 2013 for Hedgeye subscribers.
“The will of man is not shattered, but softened, bent, and guided…”
-Alexis de Tocqueville
If we need a French guy to tell us what, precisely, is wrong with an un-elected US Federal Reserve whose Chairman has unlimited power over both the value of your currency and rate of return on your savings, so be it.
“… men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which government is the shepherd.”
Isn’t it sad? But which part is the saddest? Is it the cowardice in free-market leadership, or the groupthink grounded in how much people will pander to a man that gets them paid? I don’t know anymore. I read this Tocqueville passage at a picnic table at a rest stop in Maine last night. I lit up a cigar, and I felt like I was going to puke.
Back to the Global Macro Grind…
The thought of Gold ripping and #GrowthSlowing because an un-accountable central planner doesn’t allow economic gravity to get marked-to-market makes me sick to my stomach. I run a small business in America. I have a payroll to meet and people to inspire – it gets a lot tougher when the economy slows than when it’s accelerating.
Not that anyone in Washington cares, but I’ll be fine. I started this firm during the thralls of 2008 when Bernanke thought the “shock and awe” rate cuts to 0% were going to save government from itself. So I can take a P&L punch. But if the buck keeps burning and rates keep falling, Bernanke, Obama, and “progressive” Republicans are going to knock some people right out.
I don’t agree with everything he says or thinks, but I think Mark Levin has this part of it right: “The nation has entered an age of post constitutional soft tyranny” (The Liberty Amendments, pg 4). And I’m not talking about politicized social issues or anything outside of my domain of required reading – I’m talking about the economy and markets.
How else would you describe a market that hangs on every breath of what an un-elected body @FederalReserve says and/or hints next? Forget the soft stuff – this is hard core tyranny.
So, after being the US #GrowthAccelerating bulls for the better part of the last year, how do we reposition for?
1. Down Dollar
2. Rates Falling
Whether you like the probability of these things occurring or not, it’s officially rising. But you already know that. You can see the “growth style factors” in your portfolio slowing.
Yesterday’s US stock market correction (from the all-time highs) was led by the Financials (XLF). The only S&P Sectors in our 9 Sector Model that were up on the day were the 2 slowest growth sectors – Utilities (XLU) and Consumer Staples (XLP).
What else has been working this week?
Isn’t that just great? Think about that for another few seconds – AT THE ALL-TIME HIGH IN THE US STOCK MARKET, GOLD, BONDS, and VOLATILITY WENT UP! And CNBC’s big government access ratings hit new lows.
This has never happened before… that’s why it “enervates, extinguishes, and stupefies people.”
Why has it never happened before? That’s easy. We have never been at these all-time highs before – and the Bush/Obama Bernanke legacy now has plenty of “this time is different” economic policy that history will have plenty of time to review.
Is this time really different? Is it still 2008? Or do the people in Washington who are plundering your currency for political gain look like they are living through Bernanke’s said 1936 depression?
Or is it 2013 – the year when de Tocqueville finally nails it on US monetary policy being that soft tyranny that we are all so numb to that we just allow it to exist?
2013 FACT: as US economic growth accelerated (Dollar Up, Rates Up), the bond, currency, and stock markets all had this right. That’s why Gold got tapered. On September 18th, 2013, Ben S. Bernanke restrained market forces from acting as they were.
I don’t think torching the currency, starving savers or a risk free-rate of return, and trying to arrest economic gravity ends well for Americans. That’s why I went to 58% cash yesterday and I still feel like I am going to puke.
Our immediate-term Global Macro Risk Ranges are now as follows:
UST 10yr Yield 2.47-2.60%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer