Macro Millionaire Global Market Comments, April 12 | John Thomas The Mad Hedge Fund Trader

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Macro Millionaire Global Market Comments, April 12 | John Thomas The Mad Hedge Fund Trader

Global Market Comments

Macro Millionaire Featured Trades:

(LUNCH WITH ROBERT REICH),

(FRONTIER MARKETS), (EEM),

(THE ULTRA BULL CASE FOR GOLD), (GLD)

From the desk of John Thomas The Mad Hedge Fund Trader

Lunch With Robert Reich.

The other day had me sharing a cold, congealed chicken salad for lunch with Bill Clinton's Secretary of Labor, Robert Reich, at San Francisco's posh Fairmont Hotel. We covered a wide range of market impacting topics, which I have summarized below. A Rhodes Scholar who dated Hillary Clinton at Yale, ran for governor of Massachusetts, and authored 12 books, Bob is never without an original thought, nor a stranger to controversy. Today he didn't disappoint.

Bob says that easy money is creating new bubbles around the world, especially in China (FXI) and commodities, that will only end in tears. The Middle Kingdom is the first country where inflation may break out to the upside.

There is also a new form of protectionism that has emerged under the guise of competitive currency devaluations, where counties printing paper money are racing to the bottom. This will eventually force a revaluation of the Chinese Yuan (CYB), and there's nothing the Chinese can do to stop it.

A US GDP that is 71% dependent on consumer spending is unsustainable, since they can no longer afford it, can't get credit, no longer have a personal ATM in the form of home equity loans, are worried about losing their jobs, suffer under a huge debt burden, and are now unexpectedly having to save more for their retirement since their houses have dropped in value by half.

Scott Brown's surprise win for the Massachusetts senate seat will only cause uncertainty in Washington to explode, not exactly a stock market friendly development. Brown is really "a sheep in wolves' clothing," as he is ideologically distant from the right wing that is currently running the Republican party, voted for Massachusetts's state health care plan, and didn't dare to use the word "Republican" in his campaign.

The Obama administration committed a major error by devoting one third of its massive $870 billion stimulus program to tax cuts, which in this environment, will get saved, not spent. You might as well have buried the money in your back yard.

The TARP money, while succeeding in rescuing the financial system, only ended up in Treasury bills, and never made it to Main Street. This is what the public is irate about. The loopholes in the proposed financial regulations are big enough for bankers to drive their Ferraris through. The best way to revive the economy is to give money to the states directly, which, unable to run deficits, and can only cut spending and raise taxes. This will create a $350 billion drag on the economy during 2010-2011, in effect an "anti stimulus" that cancels out a third of the federal government's reflationary efforts.

I took two of Bob's economics classes at UC Berkeley, and know too well his wry humor, acid wit, and preference for backing up arguments with mountains of empirical data. Entering students are obliged to buy 400 pages of photocopied charts, tables, and other raw data about the labor market which they are expected to commit to memory by the end of the semester. These are not basket weaving classes.

Bob warned me not to take his investment advice, as he bought his home in Berkeley at the 2006 market top, just before it dropped in value by half. On top of that he has had to eat a 10% cut in his Berkeley professor's salary forced on him by drastic state budget cutbacks. UC Berkeley is the crown jewel of public education, but the state has little choice but to starve it to death. This is not good for the long term future of the Golden State, which has to create the educated class to earn the wealth to pay the taxes.

The real kicker of the lunch was Bob's forecast that unemployment will remain stubbornly high at 9% a year from now. This is going to be a big problem for Obama in November. The jobs that have been exported to China or replaced by machines aren't coming back. Because of the arcane way in which the surveys are conducted, someone who isn't looking for work isn't counted. But when the economy starts to improve, when they do start to look they are newly counted as jobless, causing the politically sensitive figure to shoot up. To avoid this trap, it is better to look at the Payroll Survey released on the first Friday of each month, which gives a much more accurate read on the economy. Even still, with the average work week at a record low of 33 hours, employers will make their existing staff work longer hours before they hire anyone new.

As we parted company, Bob left me on an upbeat note. "The good news is that the Great Recession of 2008-2009 is over. That's because it's now 2010."

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