Watered Down Printers

“While it is true that you can fight fire with fire, it has never been suggested that you can fight water with water.”

-Richard Duncan


In a newsy weekend headline that was reminiscent of Paul Krugman’s infamous “PRINT LOTS OF MONEY” advice to the Bank of Japan in 1997, Barron’s Jonathan Laing told Americans that it’s “TIME TO PRINT, PRINT, PRINT.” Scary.


While it’s no longer shocking to see perma-bulls beg Bernanke to print moneys and debauch the long term value of America’s currency, it is becoming quite sad to watch. ‘Government Is Good’ monetarists have apparently learned nothing from history’s lessons.


On the topic of “quantitative easing”, rather than take the manic media’s word for it as they perpetuate a US stock market plea to perpetuate our traverse to economic perdition, I highly recommend reading Richard Duncan’s “The Dollar Crisis.” It was first published in 2003 and while it would be much more powerful if it was re-published alongside Reinhart & Rogoff’s “This Time Is Different” with today’s data, it’s still a critical analysis.


To save you some summer reading time, you can skip right to chapter 11. It’s titled Monetarism is Drowning and introduces some clever, non-consensus, thoughts like “Irrational Monetarism” that I think are well worth your time to consider. We are not going to solve America’s problems by printing more money and daring Americans to lever themselves up again to chase some yield. It’s time to get serious here.


The US Dollar has seen some serious destruction in the last 9 weeks. On the heels of another nasty unemployment report on Friday, the US Dollar closed down for the 9th consecutive week, taking its cumulative decline to -9.2% since the first week of June (we remain short the Dollar via the UUP).


At the same time, short term US Treasury yields closed out the week at their lowest weekly level EVER (0.51% UST 2-year yields) – and ever, as our Hedgeyes in New Haven like to say, is a very long time.


Don’t worry though, the CNBC and Barron’s stock market cheerleaders of a Destroyed Decade are still peddling you stories from their Watered Down Printers  into whatever media outlet they have left to drive an advertising dollar. In their perverse world, Dollar DOWN + Treasury Yields DOWN = a great case for stock market “valuation.” It’s a good thing we didn’t pay attention to them when this was happening in 2008.


Obviously no country has ever devalued its way to prosperity, and I don’t think Groupthink Inc. in Washington is teeing America up to set a new precedent time around either. I don’t believe in using the US stock market as a single-factor measurement tool for American progress. In an Early Look from a few weeks ago titled “Growth and Progress”, I introduced the following multi-factor scorecard for a sustainable American recovery:

  1. Strong Employment
  2. Strong Currency
  3. Strong Rates of Return

This isn’t political commentary. This is a pragmatic plan. If you’re a professional politicians who has been forwarded this email and you don’t like being called names or being called out – too bad. Quit whining, pointing fingers, and fear mongering and fix these 3 things instead of printing moneys. Then maybe we won’t continue to hit record all-time monthly highs in the number of Americans in line for food stamps (latest reading = 40.8 MILLION)…


The US stock market futures are up this morning, and they should be. After Friday’s unemployment report, US stocks rallied from their intraday lows to give the bulls hope. Hope might work for an immediate term TRADE, but for the intermediate term TREND, ignoring both the US currency and bond markets is for a buy-and-hope crowd far braver than we.


The SP500 has immediate term TRADE upside to 1135 and our Bear Market Macro line of resistance remains up at 1144. In the immediate term, the Watered Down Printers of money better hope and pray that “print, print, print” chant keeps the SP500 above 1114 support. Praying at least has a better track record than hoping water can fight water.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Watered Down Printers - DDEL

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