"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."
-Ernest Hemingway
As the wanna be Maestro Ministers of European finance descend on the capital of Spain today, remember one thing: European politicians take long lunches and long naps. These guys are in it for their own temporary prosperity. Their proactively predictable plan coming out of Madrid will be to Pile Debt Upon Debt Upon Debt. That is going to bring a permanent ruin to the already high-low society that they perpetuate.
From Argentina to Greece this morning, countries who have lived their lives in serial default are going to tell you “it’s different this time.” That’s what liars and/or people who don’t know what they don’t know about history do. Always remember: markets don’t lie; politicians do.
Reinhart & Rogoff’s latest compilation of 8 centuries of inflation and currency data would agree – “This Time Is Different” – in only that this time we are going to light up this global bonfire of fiat currencies from Athens to Bangkok. That volcano in Iceland is nothing compared to what’s coming down this financial system’s pike.
While some might choose to forget that Argentina defaulted on a cool $95 Billion in 2001… and some may choose to ignore that stocks in Thailand have dropped -9.4% since April the 7th … and some may claim these aren’t facts that will affect the collective geopolitical risk that we Hedgeyes call interconnectedness… that doesn’t mean these realities cease to exist. The hot magma of global sovereign debt risk is beginning to bubble.
Like the Bear Stearns story of May 2008, when soothsayers named Blankfein, Bernanke, and Fuld said the storms of debt obligations hath passed, Greece is a metaphor that risk managers in May of 2010 better not choose to ignore.
Funding long term liabilities with short term marked-to-model government paper didn’t work then, and it won’t work now. Borrowing short allows the gasses of inflation that lie below the belts of political crust smell like what they are. Everyone in this risk management room knows the stench.
On that cheery Friday note, allow me to introduce the Return of the Hedgeye and our Q2 Macro Themes for 2010 (we will be hosting a conference call for our subscribers at 11AM EST):
- Sovereign Debt Dichotomy – As sovereign debt issues accelerate, we expect to see a dichotomy develop between the winners and losers. The equity and currencies markets of these countries will react accordingly, with a number of investment opportunities on both the long and short side.
- Inflation’s V-Bottom – We continue to see a reacceleration in inflation that is currently not priced into interest rates, or broad prices. We will be also introducing our proprietary Hedgeye Inflation Index on our conference call this morning.
- April Flowers / May Showers – In an inverse of the cute expression, we are expecting the spike in the U.S. stock market from April to come back down to earth. We are not calling for a crash, but a proactively manageable correction. We will outline 15 reasons as to why we think the SP500 is a short going into May.
As is customary for our Macro team’s presentations, we have inside of 3 dozen glossy slides that would make Fed doves like Janet Yellen and Bill Dudley cry. Our goal is not to be alarmists, but to continue to protect you and your families from the sinews of our conflicted and compromised government forecasting processes like we did in 2008.
My immediate term support and resistance levels for the SP500 are 1195 and 2014, respectively. We shorted the SP500 yesterday and bought volatility. If you’d like to participate in our conference call, please email . We will have a full Q&A session that doesn’t have the shackles of sell side compliance people who need to protect their conflicted investment banking and brokerage business machines. This is all about real-time research, all of the time.
Best of luck out there today and have a great weekend,
KM
