This note was originally published at 8am on March 31, 2015 for Hedgeye subscribers.
“It is necessary for a bull fighter to give the appearance at least of respectability.”
That’s what I was thinking about as I read Ben Bernanke’s first blog yesterday. He’s just looking for what Greenspan continues to look for – respectability (and speaking engagement fees).
The aforementioned quote comes from a beauty by Hemingway titled “The Capital of The World”, where a wanna be bull fighter dies an unceremonious death. “He died, as the Spanish phrase has it, full of illusions.”
That’s how #history remembers most ideological attempts to centrally plan things like growth, inflation, and economic gravity. Creating the illusion of growth (inflation) can only last so long. After that, c’est le #deflation.
Back to the Global Macro Grind…
You don’t like my mixing of Spanish and French metaphors? Read Bernanke’s blog – and once you’re done, send me an email that tells me, in English, what he was trying to say (be forewarned, it will take you a while). Here was the highlight:
"The state of the economy, not the Fed, ultimately determines the real rate of return attainable by savers and investors.”
“So”, per The Bernank, the 0% rate of return on my savings account for the last half-decade was not determined by the Fed afterall! The man had nothing to do with it. It must have been the weather?
Moving along to macro markets this morning (which by the way, no buy-sider of respectability has ever given a former Fed person the reigns to successfully run real money – ever think about why?):
- US Dollar bounced right off immediate-term TRADE support = check
- US interest rates have fallen back to 1.95% on the UST 10yr = check
- US stocks, led by great #HousingAccelerating news, bounced into month-end = check
Backcheck, forecheck, paycheck! (I’m going all hockey blog lingo on you now)
In all seriousness, let’s go through some of the why on the these three macro moves:
- USD up on Burning Euros (-1% this morning post underwhelming European inflation and employment data)
- Global #Deflation Bulls continue to realize that the best way to get paid on their theme is lower-rates-for-longer
- You didn’t think they’d let the SP500 finish Q1 down for the YTD, did you?
Oh, you want some more meat on that European “data” bone?
- Eurozone CPI for March was -0.1% y/y vs. -0.3% in FEB
- Italy’s CPI for March didn’t budge, at all, at -0.1% y/y vs -0.1% in FEB
- Eurozone unemployment was 11.3% vs the prior 11.2% reported
In other words, much like you’ve seen in Japan for decades… in stark contrast to European stock and bond markets ramps (German DAX +23.5% YTD and German 10yr Bund Yield 0.20%), the European economy hasn’t done jack.
I guess Bernanke would tell European savers to sit on that for the next 3-5 years, and like it. If some poor bastard in Southern Italy has no savings to speak of, he needs to dial-up the Medici Bros on a rotary phone and start an online stock trading account!
Back to more local matters, like the relationship between US Dollars and American Purchasing Power, Consumption, and Savings… what Heli-Ben didn’t quite get (or blog about) was that these very important things are positively correlated.
#StrongDollar --> Slowing Inflation (think cost of living) --> Rising Real Consumption --> Moarrr Savings
I swear, this is rocket science, eh? Don’t forget that the 1983-1989 and 1993-1999 periods of > +4% real US GDP growth was not only sustainable for more than a few quarters – but it punished those who invested in Down Dollar Inflation Expectations assets.
This is not obvious to a lot of people right now because many of them would have to accept the responsibility in recommendation of maintaining a Devalued Dollar (post Nixon/Carter 40yr lows = 2011-2012) throughout Bernanke’s un-elected reign.
But I digress…
Because I am not only a Bull Fighter of Euros, Commodities, and levered expectations in Energy Stocks & Bonds, but I am a bloodied Mucker, who only gets respect for being held to account for my actions, each and every day.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.85-2.01%
Oil (WTI) 43.90-50.62
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer