“Inflation is always and everywhere a monetary phenomenon.”
-Milton Friedman
While I don’t waste much of my precious life and Cycle Time debating the dogma of certain economists at Hedgeye, my dear friend and Partner, Todd Jordan, and I would sometimes discuss Milton Friedman’s definitions of real-world inflation.
Not ironically, I recently finished reading a new #history book titled Milton Friedman: The Last Conservative where the important point is made that: “The return of inflation in 2021 – increasingly understood as the result of a textbook Friedman-style “helicopter drop” of money – suggests the time is ripe for another re-thinking of his legacy.” (pg 10)
TJ would wholeheartedly agree!
Jerome Powell and the Federal Reserve clearly shocked Wall Street into believing that more cowbell (money printing) could be back in 2024. To be clear, by our US INFLATION Nowcast math, that would eliminate the idea of “hitting the Fed’s 2% inflation” target.
This Pandering Fed Policy (PFP) is already devaluing the US Dollar and, therefore, the purchasing power of The American People. Inflation is always and everywhere a reality when that happens. Bernanke did the same thing, pandering to Old Wall Street, as they begged for rate cuts, cowbell, and bailouts in 2008.
Back to the Global Macro Grind…
Ok, so as TJ would say, “how do we make money on that?”
Well, Milton Friedman had an answer for that too – you own it (the inflation of asset prices) for “as long as the public is fooled and so long as it can maintain a rate of monetary expansion that it can’t sustain.”
Is the public currently “fooled”? Well, on very short-term durations, it has been. Here’s what the Fed’s Dollar Devaluation impact has been in inverse correlation terms:
A) 15-day USD vs. SPX Correlation is -0.75
B) 30-day USD vs. SPX Correlation is -0.88
So, again, if you’d like to have The People experience this real-world reflation further, maybe SPY Monkeys can feel like they’ll get fed, daily, forever (SPX is up for 7 of the last 8 days)… but, that ended up being a very bad thing coming out of December of 2007 when the US economy was deemed by almost EVERY Linear Old Wall Econ to be “Goldilocks.”
Oil (WTI) just broke out on my immediate-term TRADE duration above 74.16/barrel. Just fyi on that. Do you remember what Oil did when Ben Bernanke kept getting incrementally dovish in the 1H of 2008?
*hint: it went to 147/barrel.
Irrespective of all of that, here’s how we think we’re going to keep making money (our new Long Only Portfolio Solutions product re-ranks each Asset Allocation for incremental additions/subtractions to my positions, daily):
- FDRXX (held in Fidelity High Yielding Money Market) + TBIL + TFLO + BUXX
- Gold (GLD)
- Physical Gold (AAAU)
- Utilities (XLU)
- British Pounds (vs. Short USD)
- Uranium (URA, URNM, and NLR)
- Short-term Treasuries (SHY = 1-3 years)
- Insurance Stocks (IAK and KBWP)
- India (INDA and SMIN)
- Bitcoin (BITO)
Those are the Top 10 Asset Allocations ranked by yesterday's SIZE. Long India has been moving down the list as the price of India’s stock market has gone vertical into year-end performance chasing, for example.
I own a bunch of other Asset Allocations that most of The People don’t own (like Gold Miners, Israel and Philippines Stock Markets, US Healthcare Stocks, etc. = GDX, GDXJ, EIS, EPHE, PINK) which has my total at 29 specific Asset Allocations.
I personally don’t care what other people own. I don’t have to own what they have to chase. I have to have the discipline and #process to preserve and protect my family’s hard-earned capital so that I can compound returns > the Fed’s inflation.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 3.90-4.37% (bearish)
UST 10yr Yield 3.79-4.25% (bearish)
UST 2yr Yield 4.25-4.75% (bearish)
SPX 4 (bullish)
NASDAQ 14,308-15,117 (bullish)
RUT 1 (bearish)
Tech (XLK) 184-194 (bullish)
Energy (XLE) 80.43-86.25 (neutral)
Utilities (XLU) 62.01-65.33 (bullish)
Shanghai Comp 2 (bearish)
BSE Sensex (India) 68,737-71,965 (bullish)
VIX 11.93-14.82 (bearish)
USD 101.47-104.06 (bearish)
GBP/USD 1.251-1.279 (bullish)
Oil (WTI) 67.85-75.37 (bearish)
Gold 1 (bullish)
Uranium (URA) 28.05-29.93 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
