Who Got Rich of This Rally…Not YOU! Who Will Get Poor…?

Posted by Howard
on July 27th, 2009

I don’t read must reasearch because most of it is too positive or too negative.

I like ideas and making up my own mind.

One morning read I am lucky enough to get is from Research Edge , specifically Keith McCullough. Keith can separate the price from the noise and give me some negative macro news, while understanding the animal spirits of the NOW.

With the markets looking like they will never go down, still no criminal investigations into any of the banks, or any meaningful changes at the regulatory level, Keith writes:

Ben Bernanke, thank you so much for saving me. You are my hero.

This is the very same man who is allegedly an academic messiah of Depression histories. This is the very same man that no less than 3 months ago was signing off on a compromised and conflicted fear-mongering campaign that bailing out Wall Street had to be done or the end of the earth cometh. This is the very same man who is using his history books and lagging economic indicators to prognosticate the future of America’s economy. This is a tragedy.

Obviously, if Bernanke was the hero of this story the US currency wouldn’t have traded down for the 3rd consecutive week last week. Alongside Goldman printing $5/share in earnings and Citigroup paying a trader $100M (yes, that’s million), 99% of Americans who are allowed to, get the joke. The joke is that Bernanke doesn’t get that he is the lemming that’s getting the Debtors, Bankers, and Politicians paid.

Lemming? That’s harsh Keith. Yes, folks, and so will our commoner lives be if I am right and we see what I have been calling for in the 4th quarter – reflation morphing back into inflation. While the high side of my Range Rover macro theme for Q3 was off the mark, my other 2 macro themes (Burning The Buck and Reflation Rotation) continue to play out in lock step.

This morning you are seeing the US Dollar Index trade down again to $78.56. This is only the 4th time in almost 40 years that the $78 level has been tested. That matters.

Since March, the world’s reserve currency has basically crashed. I know, I know – Barron’s is calling for “Hello 9,000: The Dow’s Run Is Far From Over”, but there is a loser in the game of everything priced in US dollars reflating – the Dollar! The US currency has lost -12% of her credibility in less than 4 months. That’s a crash.

Rather than appearing on 60 Minutes, PBS, and writing Wall Street Journal Editorials, I suggest Mr. Bernanke starts spending some time looking at real-time, marked-to-market, leading economic indicators. Since it’s clear that he hasn’t done the math, here are some things to look at:

After keeping a completely politicized “emergency” level of a Fed Funds rate at ZERO, look at what these prices have done in the last 2 weeks:

1. The CRB Commodities Index +7.5%

2. Oil +15%

3. Copper +14%

4. Gold +5%

5. SP500 +11%

6. 10-year US Treasury yields 3.71%

As Bernanke hinged his cart to the conflicted, saying that he’ll change his monetary policy “when the economic outlook requires us to do so”, the world simply sold more US Dollars, and continued to buy everything else. If America is willing to let her currency burn, why hold any more of it?

Have no fear, our super heroes Hillary Clinton and Timmy Geithner are here. This week, China is sending their B-team to Washington to meet with our equivalents of Dora The World Peace Explorer and her buddy Go Go Goldman Diego to talk about China’s largest invested position. How do you think these meetings are going to go? Go Go doesn’t do global macro…

Again, maybe… just maybe, Main Street isn’t as stupid as Washington makes them out to be. Maybe they see the Reflation Rotation coming for Christmas 2009. Maybe that’s why President Obama’s approval rating just hit a new low.

Maybe people get that the “Great Depression” narrative fallacy was a purely political one. Maybe China gets that this situation is going to end wherever they decide it will. Maybe today’s CNBC heroes are writing the history of the American currency tragedy right before our very eyes.

Keep those eyes wide open. The level of group-think we are seeing in the US market is generational in scope. My refreshed levels for the immediate term TRADE in the SP500 are 948 support and 990 resistance. If the Buck continues to Burn, we’ll get our 990, and the said Great Depressionista bankers will get their raise.

Lucky for me, I was mostly on the sidelines from January 2008 through March 9, 2008. Unlucky for me, I caught just apiece of this great rally.

I assure you I did better than most traders and investors through it all. I do not feel more confident about the markets and in fact the obvious trade has played out…higher Oil and a Weaker US dollar, which I invested by owning a lot of $USO and a lot of $FXC – chronicled on this blog.

I am excited about all the growth setups I am starting to finally see, but I don’t feel they are related to any of the policies and acts of just one man.

America is super resilient. Great leaders adapt and we have many of them running American growth companies. This is happening while our leadership f#$^ks with the money supply, health care and tax system.

With the Dow at 9,000 there will be much political chest pounding.

The best thing you can do is ignore it, watch the US dollar and the price action of the leaders. You might get dizzy, but you won’t get sick to your stomach.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.