Aussie-Rules Economics

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

-F.A. Hayek


Either the Reserve Bank of Australia’s Chief, Glenn Stevens, has it really right these days or he is setting himself up to get this really wrong. Economics is not a science of laws. After all, as American historian Ben Bernanke recently told Congress: “Monetary policy is an art.”


It’s no secret that I am fond of Mr. Stevens ability to stand outside the political arena in making tough monetary policy decisions. He has raised interest rates multiple times since the narrative of a Great Wall Street Compensation Depression began. In doing so, he has actually seen the Australian unemployment rate drop and domestic consumption rise.


No, these aren’t Japanese or Americans style policies. These are Aussie-Rules Economics, mates. In Australia, the man who runs the place isn’t on 60 Minutes or writing Op-Eds for the Consensus Street Journal either. Glenn did his FIRST television interview last night since being appointed head of the RAB (he was appointed in 2006). Rock-star member of the Global Bubble in Politics this man is not.


When you read his quotes, consider them within the context of Washington’s current buy-in to government bailout Keynesian economics:

  1. “It’s not wise to leave interest rates right down at rock bottom any longer than you need”
  2. “It would be not doing people any favors to have a prolonged period of very low rates and then hammer them unexpectedly”
  3. “I think it is a mistake to assume that a riskless easy guaranteed way to prosperity is just to be leveraged up into property… It isn’t going to be that easy.”

You’d think with a radical hawk flying around the East side of this world like this that his stock market would be collapsing? Or would you? What is the best way to measure a country’s long term health anyway – by the recent up or down tick of its stock market? How about the strength of its currency; its bond market; or its international credibility?


Maybe I have a bias towards Glenn Stevens because he obtained his Masters in Canada (University of Western Ontario). Maybe I’m just a stickler for getting a rate of return greater than zero on moneys I have in a US Savings account for my children. Heck, maybe I’ll go hire another 30 people during the next economic downturn without government support if I actually generate some fixed income on those savings!


These are fascinating times by any economic measurement. I often wonder how our accomplished historians running on fear-mongering US politics think about where John Maynard Keynes’ fame came from – challenging the bureaucracy of Perceived Wisdoms that were born out of the last mega-cycle of government excess (the 1920’s in Britain).


Too much to think about on this rainy morning in New Haven. That’s a good thing, but I need to give you some macro meat to chew on in the meantime. Shifting gears, here’s where our Hedgeye macro lines washed out into last week’s end:

  1. The Buck Breakout continued to the upside – the US Dollar Index was up another +1.1% last week, taking its rise since the late November lows to +9.4%.
  2. The Euro was oversold again on the news of another lagging indicator (Portugal’s debt downgrade) – my immediate term risk management range remains 1.33-1.36.
  3. The CRB Commodities Index closed down another -1.8% on the wk and remains below my intermediate term TREND line of 275 (interest rates and US Dollar up hurts).
  4. WTIC Oil finally broke my immediate term TRADE line ($80.78); we sold out of our 3% position in Oil in the Asset Allocation Model on the breakdown.
  5. Volatility (VIX) in US Equities rose +5% on the week, but the VIX remains broken across all 3 of our investment durations (TRADE, TREND, and TAIL).
  6. 2-year Treasury Yields continued to breakout to the upside (we call this the Rate Run-up); the long term TAIL line of resistance at 0.96% is now support.
  7. 10-year Treasury Yields continue in what we call a Bullish Formation (bullish across all 3 investment durations); immediate term TRADE support = 3.71%.
  8. 3-month LIBOR continues to rise 1 basis point at a time and now stands at 0.29%, up +16% from where that reference rate was at the beginning of the month.
  9. 10-year swap spreads went negative for the first time (by 10 basis points); this means said ‘AAA’ rating of American finance is finally under attack by the quants.

On the calendar this week you have 3 big factors to proactively prepare for: the end of the Fed’s MBS bailout program and month/quarter end for the asset management industry on Wednesday; then the US unemployment report on Friday.


I am thankful that US Congress has gone to recess until April 12th. It will give me less morning news-flow to read that saddens me. Aussie-Rules Economics are making me feel better already.


My immediate term support and resistance levels for the SP500 are now 1157 and 1173, respectively.


Best of luck out there today,



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