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Truth and Consequence

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History will not reflect kindly on recent economic decisions.

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"He who learns but does not think is lost. He who thinks but does not learn is in great danger."
--Confucius

A Chinese philosopher said that when it's obvious goals cannot be reached, don't adjust the goals-adjust the action steps. Global central banks have taken those lessons to heart.

The construct of capitalism has forever changed and investors are spinning from the insane volatility gripping financial markets. 20% moves in major market averages-session over session-are tough to stomach regardless of your directional bias.

One year ago, when the writing was on the wall as the Dow Jones Industrial Average probed all-time highs, pundits confidently proclaimed there was clear sailing ahead.

Last week, as perception caught up with the daunting reality of debt and derivatives that we've warned of for years, depression was debated across mainstream America.

You can't blame folks for being confused. We're past the point where bulls and bears profit or lose. We've entered a new world order, a scary stretch where politicians rewrite history on a daily basis in an attempt to escape the devil of deflation.

There are certain things we know for sure. Universal truths, if you will, that can provide clarity amid the confusion. We'll tackle five themes today with hopes that we'll shed some light as we together find our way.


The Measuring Shtick

Two trading dynamics considered gospel for many years have effectively been debunked. The first was that lower crude would serve as a positive equity catalyst and the second was that a higher dollar would bode well for stocks.

We live in a Wishbone World with dollar-denominated assets on one side and the greenback on the other. One of two things must occur: either the world reserve currency will debase, paving the way towards hyperinflation, or the dollar will strengthen as debt destruction continues it's natural course.

The government is attempting to buy the cancer and sell the car crash. The mere perception of "success"-a whiff, if you will-should be enough to shift psychology to the other side of the ride, damaging the dollar and propping stocks higher for a trade.

Fund of Funds

The hedge fund bubble popped this year and the carnage has been pervasive. On top of regulatory scrutiny and operational restrictions, the correlation of strategies has buried the best in breed well below their high water mark.

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No positions in stocks mentioned.
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