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With the Buck Burning again today (down another -0.4% at $75.31), the US Equity market is testing higher-YTD-highs…

That’s just the way it is folks. Dollar Down gets the Debtors and Bankers paid. The Creditors foot the bill.

There is no need to get political or emotional about this in your portfolio. Making money on the long side of this macro inverse correlation is becoming relatively easy. The Volatility Index has been smashed (VIX down -25% in the last 2 weeks) and volumes are starting to accelerate again on the up moves. For the immediate term TRADE at least, all is well in the house of levered cards that the American Financial System built.

What’s fascinating about this is that as Wall Street gets paid, the US Consumer isn’t buying in. While some in Washington might like to think that Americans are as stupid as politicians look while being YouTubed on economics, they aren’t. When it comes to their wallet, Americans are always aware of reality.

The New Reality is that both America’s currency and the government officials that fail to support it have been revealed. This is the Credibility Crisis. Andrew Barber and I show this to scale in the chart below which overlays the US Dollar with the University of Michigan Consumer Confidence going back 3 years.

There are 3 points to be made about the 2 factors in this chart:

  1. They are correlated
  2. They have been since Bernanke started playing this REFLATION game
  3. They both continue to make a series of long term lower-highs

Friday’s Michigan Consumer Confidence reading (for the month of October) came in at 69.4. That was a lower-high versus the reading we saw in September of 73.5. If the US Dollar continues along its current path of negative price momentum, it won’t be long before it tests making a lower-all time-low.

I know. The US Dollar Bulls say that the Buck hasn’t yet Burned below its 2008 low. That’s plenty fine until it isn’t. Just remember that the US Dollar reference point from 2008 not only prefaced a crash in US Consumer spending ($150 oil), but it was a 38 year low for America’s currency.

Everything priced in Dollars can continue to REFLATE, other than the American Financial System’s Credibility.

KM

Keith R. McCullough
Chief Executive Officer

Chart of The Week: Credibility Crisis - COTW Oct 19