“The Act will be known in history as The Crime of 1873.”
- General A.J. Warner
What if you wake up tomorrow morning to the US government telling you that there’s no inflation? First of all, that’s what Old Wall consensus is betting on. More importantly, the government lies about real world inflation almost all of the time.
The aforementioned quote comes from a US General who was living through the DEFLATION that ensued in America post 1873. What happened in 1873? A: Senator Sherman from Ohio demonetized Silver.
“There was but one man in the United States Senate who knew the Act of 1873 demonetized Silver, and yet he has never been hanged or shot for treason…” -The Story of Silver, pg 23
Back to the Global Macro Grind…
Is “reported” US Inflation setting up for a big “miss” tomorrow?
A) It better be, because that’s what the market is betting on …
B) If it doesn’t “miss”, there will probably be a market event associated with that
Market event? Yep. Can you imagine a scenario where:
A) Bond Yields rip +15-20 basis points (on the 10yr) in a day…
B) Towards the top-end of my Risk Range™ Signal?
What would be the market event associated with that?
A) Tech would correct, quickly, from the top-end of its current my Risk Range™ Signal… and
B) Our Financials (XLF) longs would ramp right back to new Cycle Highs
What’s interesting about that setup is that:
A) Anything could/should make that happen from the bottom and top end of my Risk Range™ Signal anyway… and
B) Rate Sensitive Macro allocations like Gold (GLD) and Utilities (XLU) are already moving that way
You know if “inflation” was “transitory” and “going away” that bond yields (on the long-end of the curve) would break down through @Hedgeye TREND support and Gold and Utes would rip to all-time highs, right?
What about this big “miss”?
A) After Old Wall completely missed making the “call” for US CPI to #accelerate from +0.36% in Q2 of 2020 to +4.2%
B) They did what they always do and just tacked on another +30bps to now “expect” 4.6% headline CPI for MAY!
So, the big “miss” tomorrow would be missing a number that is ridiculous in both context and cadence. Less than 2 months ago, Old Wall’s prior “expectation” for headline CPI wasn’t even above 3%, don’t forget!
That brings us back to what’s had us nailing US #InflationAccelerating since JUN of 2020. If it’s a “miss” (like the last 2 jobs reports were”, what happens in JUN if/when both INFLATION and JOBS “beat” after “missing?”
Ah, you like that, eh? A little bit of thinking inspired by your knucklehead hockey playing Canadian Irish friend…
It’s not just #FullCycle Investors who:
A) Have been long of INFLATION’s TREND for a year now instead of whining about it being “transitory”… and are
B) Getting paid buying every damn dip in Inflation Asset Allocations when they can
It’s some of the top leading indicators for JUN inflation that:
A) Continue higher with Oil (WTI) inflating to new Cycle Highs this AM at $70.44/barrel…
B) Markets like Russia (RSX) and Saudi Arabia (KSA) punching out new Cycle High returns for us non-transients too
Yes, by the end of Q3 our US INFLATION nowcast is going to dis-inflate to +3.92% (epic, I know)... but in between now and then we have the JUN and JUL CPI and jobs reports that should “beat” bigly from this level in the UST 10yr Yield.
Immediate-term @Hedgeye Risk Range™ Signals (with TREND in brackets):
UST 10yr Yield 1.50-1.67% (bullish)
SPX 4181-4246 (bullish)
RUT 2 (bullish)
NASDAQ 13,595-13,984 (bullish)
Tech (XLK) 136.71-141.42 (bullish)
Energy (XLE) 53.49-57.94 (bullish)
Financials (XLF) 37.38-38.87 (bullish)
Utilities (XLU) 64.37-65.81 (bearish)
VIX 15.01-18.49 (bearish)
USD 89.48-90.41 (bearish)
EUR/USD 1.212-1.226 (bullish)
Oil (WTI) 66.29-71.92 (bullish)
Nat Gas 2.95-3.18 (bullish)
Gold 1 (bearish)
Silver 27.41-28.42 (bullish)
Bitcoin 30,620-39,193 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
