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This note was originally published at 8am this morning, October 08, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

"A modern philosopher who has never once suspected himself of being a charlatan must be such a shallow mind that his work is probably not worth reading."

- Leszek Kołakowski

Listening to Bloomberg’s Tom Keene interview Alan Greenspan last night gave me clarity on something that I haven’t quite been able to put my finger on for a long time. On the topic of US economic policy, the world has been transfixed by Shallow Charlatans.

Now let’s not confuse the word transfixed with convinced. Per the Merriam-Webster definition, to be transfixed is “to become motionless with horror, wonder, and astonishment.”

I became motionless last night – literally - as I was driving home down the Merritt Parkway listening to their discussion, I had to pull over to make sure I wasn’t selectively being astonished. Maybe it was my own personal prelude to listening to what I was hearing. Maybe it was meant to be listened to, rather than watched. I’m not sure. I’m still young enough to know what I don’t know.

What I do know is that I don’t surround myself with politicians or sell-side “economists” who are prone to groupthink. After yesterday’s market close I left the office for New Haven’s Owl Shop to have a cigar with some of the most sophisticated European buy-side investors I know. After that, I had a nice dinner at Mory’s with some colleagues who are trying to figure out how to not repeat history’s risk management mistakes.

Then, no matter where I wanted to be, there I was… in my car… parked at the Mobile station in the dark…. left in horror with what I thought would be this morning’s headline news…

When I woke up this morning, it was still dark… and I was still astonished – but the best news was that Greenspan’s revisionist history from last night wasn’t a top 3 Bloomberg headline. This is progress. Americans aren’t as stupid as the professional politicians who have been pillaging their savings with ZERO percent interest rates purport them to be.

HEADLINE: “Greenspan Says U.S. Creating `Scary' Deficit as Borrowing Rises”

The only thing that’s “scary” here folks is that an 84 year old man still fails to realize that what he’s scared of are the problems he perpetuated.

Even though Keene and Greenspan weren’t focused on it last night, the #1 factor in global markets today is the US Dollar. Yes, that could very well change next month or next year, but for those of us who are accountable to what comes out of our mouths, today’s prices are what matter most.

While it’s kind of astonishing to hear a Shallow Charlatan talk about the market when he’s never traded one, this remains the contrarian investor’s greatest opportunity – fading the sell-side and groupthink consensus. Consensus is that QE is a must and Burning The Buck is ok (until it isn’t). Consensus has given birth to some of the highest inverse correlations to the US Dollar that I have ever seen.

Rather than being transfixed by the radio or television, take 30 seconds out of your day to stare at this math embedded in correlations to US Dollars:

  1. High Grade Copper = -0.98
  2. Gold = -0.97
  3. Silver = -0.97
  4. Platinum = -0.93
  5. Reuters CRB Commodity Index = -0.96
  6. India’s Sensex Index -0.92
  7. Brazil’s Bovespa = -0.91
  8. SP500 = -0.88
  9. Rough Rice = -0.87

Now the way Keene whipped around his “7-standard deviation” jargon and Greenspan found a way to obscure just about the most basic of algebraic relationships, understand this folks – there are a lot of market practitioners out here who are playing this game with live ammo who get the math. Our job isn’t to talk over you. We have your back.

The basic math that I am showing you here is on our immediate term TRADE duration. In the immediate term is where you’ll find critical market risk. Yesterday the US Dollar was up a mere +13 basis points, or 0.13%, and the deleverage on the price of gold and oil were huge.

If this government and the Shallow Charlatans that advise it want to pretend that they aren’t perpetuating volatility and systemic risk, they can go do that. But I have a funny feeling that the nasty US Consumer Confidence readings we’ve had as of late (ABC/Washington Post weekly reading down to minus 47 this week) already tell you everything you need to know about Americans and their money – they know a ponzi-scheme when they smell one.

My immediate term TRADE lines of support and resistance for the SP500 are now 1148 and 1164, respectively.

Have a great weekend and best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

Shallow Charlatans - greenspan