Juggling Dynamite

Senator Warren’s important speech in the Senate on the purchase of political power in America:

“Mr. President, I rise today to support an independent constitutional amendment offered by Senator Udall of New Mexico which would restore to Congress and the States the authority to rein in the enormous sums of money that are flooding into our political process.

As they built our democracy, the Founders feared the impact of concentration of power. John Adams, a Massachusetts native and the author of our State Constitution, expressed this ideal well. He said:

Power must be opposed to power, force to force, strength to strength, interest to interest, as well as reason to reason, eloquence to eloquence, and passion to passion.

Balance, said Adams, was critical.

But in Washington power is not balanced. Instead, power is concentrated all on one side. Well-financed individuals and corporate interests are lined up to fight for their own privileges and to resist any change that would limit their special deals.

I saw this up close and personal following the 2008 financial crisis when I fought hard for stronger financial regulations, and the biggest banks in this country spent more than $1 million a day to weaken reforms. But there are many more examples.

Big corporate interests are smart. They fight every day on Capitol Hill, every day in the agencies, every day in the courts, always with the same goals in mind–to bend the law to benefit themselves. The U.S. Supreme Court is doing all it can to help them…” See her whole speech here.

Copper and C$ are continuing to fall this morning in sympathy with slowing global growth.

The bullish counter is that the ECB is now expected to add another trillion of liquidity to the already flooded European banking sector. This next round of central bank madness may manage to goose over-valued prices higher for a while longer or be the final straw to crash the already perilously strung out global financial system. We must each place our bets according with our own conscience and live with the consequences.

This chart courtesy of John Hussman yesterday offers a good big picture of where US equity prices and consensus thinking is today versus past cycle peaks. I can vividly recall how few commentators saw any asset bubble risks in real time in both 2000 and 2007. After prices had collapsed of course, then the consensus agreed that “obviously 2000 and 2007 were extreme valuation bubbles”. But today they see no bubble.

Today at even higher, highs, and the lowest bearish sentiment in 27 years (so an even lower number of people concerned about capital loss today than there were at the market peaks in 1987, 2000 or 2007), we few sober observers once more find ourselves in a family of heroin addicts who keep insisting that it is us worrywarts that are the problem. Fortunately after more than 20 years of experience therapy, we have come to know better!

This interview touches on some of the important macro forces that have been scaring central banks into repeated bouts of desperate measures.

CNBC’s David Faber speaks to Jeffrey Gundlach, DoubleLine Capital CEO & CIO, about his contrarian call on interest rates and the strength of the U.S. dollar.  Here is a direct video link to part 1.

And here is part 2.

When the US dollar was carving out a double bottom in 2011 and the Canadian dollar was rebounding along with QE hopes for an extended commodity’s boom, the greenback was widely declared doomed.  In fact strategists were pretty unanimously bearish on the U$ while bullish on the loonie/commodities/precious metals.  At our firm,  our analysis led us to a polar opposite view.

Three and half years later, the U$ continues to rally as the loonie has weakened and commodities languish.  The chart below shows the U$ in green and the C$ in orange since 2009.  In recent weeks, we note the same trend-following strategists beginning to pen bullish forecasts on the U$.  We take no comfort in consensus views (as they are often nothing more than mindless extrapolations of past into future), but currency cycles tend to be 7-10 years, and many aspects of our analysis suggest that this one probably has further to run.

More interesting is this next longer-term view of the Canadian dollar since 1980.  The green arrow marks its 6-year surge with the commodities super cycle from 2002 to 2008, breakdown with the credit burst into 2009, rally on QE faith into 2011, and the steady leak lower ever since.  In 2014, we can see that the 2002-2011 cycle support (far right arrow) that proved downside support in the ’08-’09 sell-off has now broken.  This suggests that mean-reversion back below .80 is a reasonable target ahead.