This note was originally published October 06, 2010 at 08:01AM ET.
"Not everything that is faced can be changed. But nothing can be changed until it is faced."
- James Baldwin
America, we have a serious problem. It’s time to face it, or we will crash again.
What’s the problem? A picture (see below) may be more powerful in communicating this simple point to your local professional politician than my interconnected global macro prose. These conflicted and compromised leaders of the Fiat Republic either have no idea what debauching our currency means or they are being willfully blind to it. Either way, they are putting their short term job security over your long-term wealth.
Pull up a chart of your Burning Buck. The US Dollar got hammered again yesterday and, sadistically, CNBC cheered. The US Dollar is down for 16 out of the last 19 weeks, losing -12% of its value, hitting fresh 8-month lows. Considering the systemic leverage issues in parts of Western Europe and Japan, this US Dollar crisis tells you everything you need to know about America’s problems relative to the rest of the Fiat Fools.
What does the rest of the world think about this?
- FIAT INTERVENTION - Governments are intervening in their respective currency markets at an unprecedented pace. Yesterday alone saw the following countries “intervene”: Japan, South Korea, Brazil, Argentina, India, Thailand, Malaysia, Indonesia, Philippines, and Taiwan.
- FIAT POLICY - Ahead of the IMF’s annual meeting with the World Bank in Washington, IMF Chief, Dominique Strauss-Kahn, told the FT, “there is clearly the idea that currencies can be used as a policy weapon” and that this would have “a negative and very damaging longer-run impact.”
- GUIDO’s WAR - Last week, Brazil’s Finance Minister, Guido Mantega, labeled this an “international currency war.”
Timmy Geithner, having never traded a currency market or protected the value of his citizenry’s currency in his life, was quick to tell Groupthinkers in DC that he “doesn’t know what” Guido’s War “means”…
Great Timmy… just great. Now that Larry is gone and your ideological overlord Robert Rubin won’t come within a square mile of a YouTube camera on the topic of sovereign debts issued in fiat currencies, America is hostage to your analytical incompetence on global macro matters.
America, if the head of the US Treasury doesn’t know … and the US Federal Reserve doesn’t know… but the rest of the free world knows… who in God’s good name is going to show President Obama a chart of the Burning Buck? I can assure you it won’t be Warren Buffett or Bill Gross. They’re both getting paid by short term performance on dollar down days too.
What do the other Fed Heads over at the Academy of Academic Dogma think?
- New York Fed Head Bill Dudley says “QE me” with as much free moneys from the heavens as Heli-Ben can create!
- Chicago Fed Head Charles Evans mercy crushed the US Dollar yesterday when he said QE “may not be enough”?!?
I couldn’t make this up if I tried folks, but markets don’t lie – politicians do. If you didn’t know New York City and Chicago Fed Heads get paid by Burning the Buck, now you know.
Admittedly, Dudley’s NYC cronies are getting paid with less immediate-term TRADE intensity than the boys in the pits of Chicago as of late. Check out the refreshed immediate-term inverse correlations between the US Dollar and the following:
- Gold = -0.97
- Silver = -0.97
- Copper = -0.97
New York Stocks
- SP500 = -0.83
*note: Timmy, these are extremely high correlations.
Again, since the Secretary of the US Treasury will be the first to remind the world that he’s “not an economist”, we don’t expect him to get the math, or have a risk management radar that might signal Guido’s War to him if it was staring him in the face.
What I can assure you of my fellow Americans (and Canadians), is this – no country has ever debauched its currency, imposed inflation on its people, and played possum to what real-time markets and prices are doing. And ever, is a long time.
As short term stock market bulls beg Bernanke for QE, and the conflicted and compromised Fed Heads from Chicago to New York pander to this “reflation” battle cry that might resonate with 5% of this country’s population, this week’s ABC/Washington Post Consumer Confidence reading tells you that the other 95% of Red, White, and Blue Americans aren’t buying into this sucker’s rally. Been there, done that.
After the best September in 71 years for US stocks, weekly Consumer Confidence dropped like the pit that’s in my stomach right now to MINUS -47 from minus -45 last week.
NEWSFLASH: The rest of the world and 95% of Americans understand what Guido’s War is – Washington perpetuates it. As for the 5% of you who choose to stand in silence when you should be protesting as your currency burns at the stake, as Abraham Lincoln said, you are cowards.
My immediate term support and resistance levels for the SP500 are now 1144 and 1164, respectively. From here on up in the SP500 (north of 1164), and from here on down for the Burning Buck, the probabilities of a US stock market crash will continue to heighten.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer