Fiat Republics

“No one could know it at the time, but 460 years of the free Republic were being brought to an end.”

-Tom Holland, Rubicon


I recently finished reading Tom Holland’s “Rubicon – The Last Years Of The Roman Republic.” After listening to what I thought was a Cato-like inquisition by Senator Shelby yesterday of Ben Bernanke, I decided to focus on reviewing my notes from the Rubicon on my flight to Chicago last night. The parallels between the abuses of political power between then and now fascinate me.


So here I am this morning with my customary 45 minutes to write my rant trying to reconcile why the US futures are up after such a negative turn of intraday events yesterday and ahead of such an ominous pair of economic data points in the US this morning (jobless claims and existing home sales).


The answer, of course, isn’t one that’s US based (that one blew up the bulls yesterday when Bernanke didn’t fold his tent and implement QE2) – it’s the second one that I highlighted in yesterday’s EL as a “very clear and present danger” for my short position in the SP500 (SPY):

  1. Ben Bernanke’s semi-annual Revisionist Forecasting Report to the Senate of Modern Day Rome.
  2. Results for the made-up European “stress tests” that already have a prescribed (positive) outcome.

On the heels of surprisingly positive June economic reports coming out of Europe (some if it because the Euro stopped going down in June; some of it because of the European confidence bred by the World Cup), the rumors are running rampant at this point that the Fiat Fools at the ECB have conducted a successful “stress test.” Shocker.


Is this new “news” to anyone who has been watching the Euro rise +8% from the ashes of the Parity Parrots? Is this new “news” for anyone who has witnessed Europeans successfully pile another 50B plus of more sovereign debt upon debt since mid May? Or is this just part of the final countdown that is perceived to be the economic resolve of the Fiat Republic?


We get how the storytelling goes. We also get how lemmings from CNBC to your local super market and me react to positive price momentum when coupled with a catalyst and a believable story – if you didn’t believe that the Europeans were going to make up positive results to a made-up test, believe it.


Not being short anything European (currency or equities) for the better part of July has certainly been the right risk management move. We’ve focused on shorting both the currency and equities of the US as we think that the storyline of American Austerity will continue to become more forceful than calling Europeans pigs.


Ironically enough, it was Ben Bernanke himself who signaled the end of Fiat Spending Freedoms to America’s compromised and conflicted Senate yesterday – and he’ll be doing it again today in the House. Senator Shelby’s line of questioning was the right one – it was about piling more debt upon America’s structural deficit problem. It was also about calling GSE debt for what it is – sovereign debt.


Shelby isn’t a modern day Cato. He won’t be a martyr, and he certainly won’t have 60 Senatorial Manipulators with daggers cut the proverbial throat that is their Caesarian fear-mongering rule. But he was the first to take an important step towards reminding Americans of their past history as the world’s great Creditor nation. Everything needs to go back to square one. National pride and credibility built on the strength of our balance sheet.


American and European professional politicians may not know it yet, but the proverbial death of their Fiat Republics is nearer today that it was yesterday. Japan’s Fiat Republic has already fallen and professional Japanese politicians have been exiled.


Unfortunately, the bearish part of this story is that America still needs to go through a few more stages of grief. In the end, it took the Roman Empire 44 years, from 88BC when Sulla marched on Rome to 44BC (Caesar’s death), to start moving back towards the Rome that the Romans themselves always understood.


Maybe our great experiment that “government is good” started with Greenspan and ends with Bernanke – while hope is not an investment process, that’s all I have left when it comes to the timing of this Fiat Republic’s fall.


I’ll leave you with Tom Holland’s prescient analogue that can easily be subbed for the American people versus those he described in Rome. It’s as bullish as it has always been:


“To the Romans themselves, who remained a conservative people despite all the upheavals of repeated civil wars, there was nothing startling about the perception that the past might shadow the present. The unique achievement of Augustus, however was the brilliance, with which he colonized both. His claim to be restoring their lost moral greatness stirred in the Romans deep sensibilities.” (Rubicon, page 371)


My immediate term support and resistance levels for the SP500 are now 1058 and 1081, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fiat Republics - US FED

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