“These high energy returns supported large permanent settlements, social complexity, and artistic creativity.”
-Vaclav Smil
Forget about the Fed and that dude Deese lying to America about inflation and focus on the fundamentals…
What does the average talking head in Old Wall media really know about either nowcasting real-time inflation stochastically and/or the long-term history of Energy returns?
To be clear, I didn’t know at least 80% of what Smil recently taught me in Energy & Civilization, A History. That’s where the aforementioned quote came from. If you want it’s context, it’s a 552 page history book with a 34 page bibliography.
Back to the Global Macro Grind…
Q: What does the average Joe or Juliette know about their Oil & Gas bills? A: They’re going up.
For those of you who woke up in the UK or Europe this morning, you’re seeing the highest gas and electricity prices, ever. You don’t need a bibliography to footnote that ever is a very long time.
I wonder if those brainiac government ideas about “ESG Carbon Pricing” had anything to do with it?
Whoever tells you that today’s US, UK, Chinese, European, etc. inflation has “only to do with the pandemic and base effects” has neither studied history nor considered the long-term impact of pre-covid capex recessions in Natural Resources.
Again, I can’t imagine ESG had any unintended consequences. “Green” sounds so good!
Well, I’ll show you some green. It’s on my screen. And, yes, you can call it whatever transitory word you want, but A) that inflation accelerating is in my account and B) still TRENDING with massive Full Cycle Investing Returns since June of 2020.
If you aren’t backing out the 19 Commodities in the CRB Commodities index like Deese is, you’re a #HedgeyeNation subscriber who is getting the following Real-time Nowcasts for US headline INFLATION (CPI):
A) #Quad3 in Q3 inflation #accelerating to 5.25% (post yesterday’s AUG CPI report)… and
B) Our Q4 nowcast for inflation #accelerating to 5.11% (that’s the 1st 5-handle we’ve had for Q4 this year)
C) Our Q1 nowcast for inflation is > 200bps higher than where it was 6 months ago at 4.82%
Front-running my own models (i.e. plugging in +75-125 basis points of higher “Shelter” inflation, which = 33% of the CPI), the next 3 quarters have more upside than downside to our current nowcasts, fyi.
Also, post the “inflation is easing” headlines spewed at you from CNBC yesterday, keep a few quantified things in mind:
- On a 2-year basis, that was a new Cycle High for the CPI, not a “sequential slowdown” (on a 1-year basis)
- That was an August Consumer Price Inflation (CPI) report. From their higher-inflation-cycle-lows in AUG, Oil (WTI) and Gas (which are heavy weights in our nowcasts) have already inflated +15% and 40%, respectively!
Since the Hedgeye Words of The Year (“Base Effects”) are now TRENDING and not transitory, you’d think these Fed forecasters would know how to read what I just wrote.
Nope. Using a 2-year instead of 1-year base effect would show you it’s not just the pandemic comps.
Oh and what, by the way, is the catalyst for Shelter INFLATION to slow? It’s not the 1 or 2 year base effect. Those base effects fall well into Q1 of 2022. Don’t forget what deurbanization and eviction moratoriums did to those numbers into Q1 of 2021!
We continue to expect this to be the biggest (upside) surprise factor to our own model as moratoriums end and US RENT continues to play catching up with all-time highs in US Home Price INFLATION.
Deese, did I say all-time is a long-time?
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.26-1.39% (neutral)
UST 2yr Yield 0.19-0.25% (bullish)
SPX 4 (bullish)
RUT 2189-2308 (bearish)
NASDAQ 15,001-15,495 (bullish)
REITS (XLRE) 46.40-49.37 (bullish)
Tech (XLK) 156.01-160.50 (bullish)
Utilities (XLU) 67.65-70.49 (bullish)
Energy (XLE) 47.20-50.54 (bullish)
VIX 15.00-21.49 (bearish)
USD 92.01-92.89 (bearish)
EUR/USD 1.177-1.191 (bullish)
Oil (WTI) 67.93-72.00 (bullish)
Nat Gas 4.58-5.57 (bullish)
Copper 4.21-4.46 (bullish)
MSFT 295-306 (bullish)
Bitcoin 44,091-50,097 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
