EARLY LOOK: The Necessity Of Progress
// January 8th, 2010 // No Comments » // Keith
“Restlessness and discontent are the first necessities of progress.”
-Thomas Edison
I have been very critical of both the US Treasury and the Federal Reserve. This isn’t about starting a fight. This is about the restlessness and discontent that anyone with a pulse in this fine nation feels. I have worked hard to own myself. I will not be paid off to be willfully blind.
It’s ok to be critical of people, plans, and processes if you end up being right. That is The Necessity of Progress. I am not right all of the time, but I wake up every morning expecting to be. Those who don’t like the sounds of that have probably never had the honor of playing for a Championship team. Winners expect to win.
In the last 24 hours, both He Who Sees No Real-Time Data (Bernanke) and the Squirrel Hunter (Geithner) have lost America’s trust, again! First, Geithner was YouTubed (called out) by Bloomberg’s Hugh Son, who revealed that Timmy’s pattern of withholding information on his own taxes repeats (he told AIG to limit their disclosures). Then, Ben Bernanke sent the following note to those who have been chowing down on the government sponsored Piggy Banker Spread:
“The Federal Reserve Thursday released an advisory reminding depository institutions of supervisory expectations for sound practices in managing interest rate risk… In the current environment of historically low short-term interest rates, it is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases.”
I call the Yield Spread (the difference between 10-year and 2-year Treasury rates) the Piggy Banker Spread, not to be critical of the bankers, but simply to call it for what it is. If both Geithner and Bernanke are going to sign off on this old-boy-network fear-mongering of the next “Great Depression”, and that allows the bankers to take whatever rate of return we used to have on our savings accounts in order to finance their own bonuses, why wouldn’t they chow down?
Take Robert Stickler’s word for it this morning (Banker of America’s spokesperson), “some people will be getting very good bonuses because they had a very good year.” Gotta love that Stickler! These guys actually think their bonuses are due to their own intellect. Newsflash: It’s the Savings Rate Stupid!
If you have time this weekend, take 10 minutes to watch Bloomberg’s all-star, Erik Schatzker, get the new Bank of America strategy for 2010. BAC’s new Captain, Brian Moynihan, doesn’t believe in doing anything structurally different. He sees no need to separate commercial banking and American savings deposits from all of the risk-taking businesses that his boys want to engage in with your money. This guy was hired to feed the pig.
At the beginning of December, I wrote about the following three bubbles, on the following three durations:
1. Gold: immediate term (3 weeks or less)
2. Short Term Treasuries: intermediate term (3 months or more)
3. Piggy Banker Bonuses: long term
You can look up the charts of gold and treasuries. I keep score. Unlike our compromised and conflicted Secretary of the Treasury, my firm shows everything that we do on our portal, real-time. We are accountable and transparent. We sold all of our gold (GLD) in the Asset Allocation Model, and now we are short it.
We are also long the US Dollar via the UUP (etf). Long UUP (Dollar); short SHY (short term treasuries); and short GLD (gold) is all really the same macro call. I continue to believe that the US Federal Reserve will be signaling an end to “extended and exceptionally” low interest rates because the economic forecast embedded in that view is simply unreasonable and unsustainable.
While the inverse correlation between the SP500 and the US Dollar that we picked up on in February of last year (see our note to President Obama from 2/24/09 titled, “Breaking The Buck”) continues to decay, we are reminded that powerful macro correlations are never perpetual. That said, since the gold price peaked and the Bombed Out Buck bottomed in early December, Gold versus US Dollar continues to have an impressively high r-square.
The Fed’s version of economic forecasting is far from a science. The days of the old boy networks of Wall Street/Washington Perceived Wisdoms are finally coming to a much appreciated halt. I don’t need to believe in Bernanke and his best buds Big Government friend, Paul Krugman, to manage my risk. Nor do I need to subscribe to the ‘we are the chosen ones’ mantra that permeates the craws of any one of Robert Rubin’s disciples (Geithner).
I need to answer the bell every morning at 4:03 AM in a passionate search for the truth. It changes every day. That’s The Necessity of Progress.
My immediate term support and resistance levels for the SP500 are now 1130 and 1145, respectively.
Best of luck out there today,
Keith McCullough
CEO
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