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"Anything that we can do to raise personal savings is very much in the interest of this country.”
-Alan Greenspan
This Greenspan quote remains one of the great hypocrisies of modern day monetary policy. Issue your aging citizenry a rate of return on their hard earned savings of ZERO, and tell them to keep on saving…
If Bill Clinton was today’s President of the United States of America and he was staring at these abysmal political approval ratings he would smack He Who Sees No Bubbles (Bernanke) upside the head and say, ‘It’s the Savings Rate, Stupid.’

If Clinton was Japanese, he’d probably smack Shirakawa upside the head too. This morning we are seeing Japan’s latest Prime Minister, Hatoyama, sign off on Japan’s 4th government stimulus in a row while his approval rating hits a new low of 59% (decelerating ever since his election). People are numb to these TRILLION Yen government handouts that have negative economic multiplier effects. Aging populations want a rate of return on their fixed incomes. It’s The Savings Rate, Stupid.
Having been on the road seeing investors for the last few months, I can assure you that it’s not the American, Canadian, or Japanese people who are stupid. They get it. Governments cut rates to ZERO so that they can finance Piggy Banker bonuses. This is very simple. You steal from your citizenry’s savings on the short end of the curve. Then you issue preferred credit to banks that are too big to fail. Then the bankers lend long at higher rates to the citizenry.
Timmy Geithner will have you believe that he is “saving” America money as bankers pay back TARP. Right. First the bankers pay themselves. Then they pay Timmy back. Then he celebrates political victory by telling us he is paying us back what he gave them to pay themselves with? C’mon Man. We aren’t stupid.
The best measure of the Piggy Banker Spreads being financed by Timmy and He Who Sees No Bubbles has a formal name in finance. It’s called the Yield Spread. That’s the spread between the long and short end of US Treasury yields. The spread between 10-year and 2-year yields is +268 basis points (2.68%) wide this morning. To put that in context, the widest Piggy Banker spread EVER was +276 basis points wide. Ever, by my math, is a long time.
Never mind the piggies. A monkey who gets government financing on these terms and could make money doing this. Borrow short, lend long. Then tell everyone you are amongst the chosen ones of modern day financial wizardry. Or say you are doing God’s work. Or something like that…
This is why people are enraged. This is why the University of Michigan Consumer Confidence reading in America has dropped, sequentially, for 3 consecutive months from 73.5 in September, to 70 in October, to 67 in November. Geithner and Bernanke are paying the Piggy Bankers with your savings. Sorry President Obama. Rahm and the boys are going to be sending you this note after you accept the Nobel Prize this week. It’s the Savings Rate, Stupid.

Fortunately, the long end of bond markets and the prices of global equity and commodity markets are not as politicized as the short end of the American Piggy Banker Curve. Now that the economic data no longer supports the interpretation of the Three Willfully Blind Mice at the Federal Reserve (Bernanke, Kohn, and Dudley), marked-to-market prices are moving in the direction of that data.
People can argue that Bernanke pandered again in his comments yesterday at the Economics Club of Washington. I will be the first to agree with that. But markets are moving away from US policy leadership and pricing in where Bernanke is ultimately going to be in the next 3-months. He’ll be removing his unsustainable and unreasonable policy that remains “exceptional and extended.”
The US Dollar is the leading indicator on this front. After trading up +1.5% week-over-week on the heels of last week’s US employment report, the Bombed Out Buck has finally started to stabilize. As a result, most things that were REFLATED (in terms of devalued dollars) are starting to lose their upward price momentum. Here are some prices that have recently broken what we call the immediate-term TRADE line of support:
1.      Oil’s TRADE line = $78.11/barrel

2.      US Energy (XLE) TRADE line = $57.38

3.      US Financials (XLF) TRADE line = $14.69

4.      Russian stocks (RTSI) TRADE line = 1,411

5.      Middle Eastern debt and stock markets (UAE stocks down another -6% this morning and down -31% since mid-October)

6.      Vietnam, Greece, Japan, Korea, etc (Vietnam down -2% overnight and down -22% since mid-October; Greece down -21%)

I know. I know. Poor Timmy doesn’t do global macro, so how can we expect him to see anything other than a failed hedgie, turned CEO of Citi, Vikram Pandit chirping at him about getting him some more political TARP points? Unfortunately, the answer here is we can’t get the willfully blind to see. They never have.

Yesterday, on weakness, I bought back some of the Gold that I sold last Wednesday. I have a 7% position in the Asset Allocation Model in Gold again. With the US market down for 2 of the last 3 days, I have invested 6% of the Cash position in the model, taking Cash down to 61% from 67%. My immediate term support and resistance lines for the SP500 are currently 1088 and 1117, respectively.
Best of luck out there today,


XLK – SPDR Technology We bought back our position in Tech on 11/20. Rebecca Runkle has an innovation story in Mobility and Team Macro has an M&A story in our Q4 Theme, the “Banker Bonanza”. We’re bullish on XLK on TREND (3 Months or more).

GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP – iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.


EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

XLI – SPDR Industrials We shorted Industrials again on 11/9 on the up move as the US market made a lower-high.  This is the best way for us to be short the hope of a V-shaped recovery.   

EWU – iShares UK Despite areas of improvement, broader fundamentals remain shaky in the UK: government debt continues to expand, leadership in critical positions lacks, and the country’s leverage to the banking sector remains glaringly negative.  Q3 saw its GDP contract by -0.3%. Further bank stimulus and the BOE’s increase in its bond purchasing program suggest that this will not end well.

XLY – SPDR Consumer Discretionary We shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30 and 12/2.

– iShares 1-3 Year Treasury Bonds  If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.