This note was originally published at 8am on October 29, 2013 for Hedgeye subscribers.
“The new coins helped to wash away the old aristocratic order.”
That, of course, is not what the 16th century European aristocracy had in mind. As my man Jack Weatherford explains in an excellent chapter of Indian Givers, “Silver and Money Capitalism”, “the silver coins at first promised to strengthen the feudal order…” (pg 19). Never blindly believe what the government promises you.
Weatherford first penned Indian Givers in 1988 (then updated it in 2010) after writing about the history of porn in Japan in 1986. His writings are some of my favorites in economic history because his narratives are fully loaded with the inconvenient truths about government plans versus outcomes.
You can only lie to The People about policies that aren’t working for so long. In the end, the history of markets, money, and businesses are marked-to-market. And even though it may take a long-time for bad policy (like burning your currency) to fail, I thoroughly enjoy the thought of my son or daughter reading about how the 2013 Fed sucked in so many group-thinkers.
Back to the Global Macro Grind…
There’s another Indian Giver making headlines this morning:
BREAKING: Rajan Raises Key Rate to Fight Inflation –Bloomberg
Booyah! That’s right, yo. India’s got a new central banker in the house- and he goes both ways (on rates). This is the 2nd interest rate HIKE in 2 months for Governor Raghuram Rajan. And the Indian stock market absolutely loved it, closing up +1.65%!
Huh? I thought that the other 90% of Bloomberg/CNBC headlines have been implying that if the US, Europe, or any country were to raise rates that the world as we know it would end?
Newsflash: it would.
But like during the 17th century enlightenment, it would end for the better! #EndofBackwardness
Indian Giver giveth to The People of India the following via a rate hike:
2. Lower currency adjusted inflation
3. Breakout in Indian stock market
And yes, everything in the land of causal currency policy action is relative, but consider the alternative model (which Bernanke, Yellen, and most French Bureaucrats are begging for – Down Currency, Down Rates):
- India’s Rupee was in freefall in Q2 of 2013, having its biggest down days ever (yes, ever is still a long time)
- India’s Consumer Price Inflation (yes, calculated in Rupees!) hit new highs as the Rupee crashed
- India’s real-inflation-adjusted economic growth slowed and its stock market hit its YTD lows in AUG 2013
Then, Rajan raised rates (twice) and:
- India’s Rupee stabilized
- India’s Inflation slowed
- India’s growth stabilized
The Keynesian-anti-dog-eat-dog-currency-debauchery-department at Dartmouth better get on this. This Indian Giver is going off the reservation versus what they’re teaching undergrads for $63,282/yr.
It’s hockey season, so it’s a good time to take a shot at Dartmouth’s Big Green Keynesian mouthpiece-in-chief, dogmatic Danny Blanchflower. He’s the guy you may have seen recently on Twitter with his jersey yanked over his head by @HedgeyeSnakeye and @DanHannanMEP (Todd Jordan and Hedgeye fav Daniel Hannan).
Blanchflower was the guy who warned that British austerity was going to mean #EOW (end of the world) for the UK economy a few years back. He’s also of the ideology that a #StrongEuro and #StrongPound is bad for “exports”, or something like that.
In other news…
The slope of UK economic growth just clocked a 3-year high and both the British Pound and British stock market (FTSE) are breaking out to new highs as the world comes to realize that ending Mervyn King’s QE Pound Getting Pounded experiment hath ended.
- Currency Up (Pound has ripped from $1.49 vs USD to $1.61 in the last 3 months)
- Rates Up (10yr British Gilt Yield of 2.59% are up +81 basis points year-over-year)
- UK GDP #GrowthAccelerating to a 3yr high
No, I’m not saying that India and the UK are seeing economic growth booms. I’m simply reminding you that this is the only way out of a Down Currency, Rate Repression government policy.
No, the aristocratic order of Big Government Intervention doesn’t like paying The People instead of plundering them via currency devaluation taxes. And I for one like that very much.
Our immediate-term Risk Ranges are now as follows (we have 12 Big Macro Risk Ranges in our new Daily Trading Range product):
UST 10yr Yield 2.40-2.57%
BSE Sensex 20132-21279
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer