Inflation came in hotter than expected in today's CPI report. Rate cut expectations are dwindling, the Russell 2000 (IWM) was down over 3% this morning, and one of our top longs, Cannabis (MSOS) is bouncing back. 

Today is a significant day. You are probably searching for answers right now.

We have them.

Hedgeye CEO Keith McCullough and Director of Research Daryl Jones shared their economic outlook on The Macro Show this morning. Check out some highlights from the transcript below and watch today's episode free in its entirety.

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Looking Beyond the Magnificent 7

"The Federal Reserve hitting the brakes on rate cuts is a real wild ride for some people so that's not what you want to be doing ... these things are still there. To ignore them is lazy.

If you only want to be focused on five stocks and that's what you want to do, that's what we're long. We're long five of the seven of the Magnificent 7, you can see that in the Early Look.

If that's all you have time to do that's fine. But I'm going to keep doing my job. We've got to keep doing the process. We have to keep measuring and mapping 50 different countries to understand that, at some point in your career, they're all going to matter again. And if you're paying attention, they've mattered quite a bit if you've been short China or long India."

Another Down Day for Russell

"67% of stocks in the S&P 500 were up on average +1.4% and there were huge squeezes going on in low quality stocks and Goldman's most liquid short basket. There's a lot going on out there. And again, if you can skate through and not hit a recession, you will see a broadening bull market that we'll buy. Thank God I didn't buy the Russell 2000 yesterday. If it were to get about $205 that would really signal the breadth is picking up. Don't forget the Russell is still down -17% from where it peaked so there's plenty of time and space if you have patience. If you don't you need to fix that. Those are feelings. FOMO is a feeling. If you went into the end of 2021 and lost -20% to -30% of your hard earned capital in 2022 that wasn't because of us. We're going to stay with what we're long because we're selfish about our hard earned capital."

Our Long Positions

"We're long India (INDA), Uranium (URA) and, of course, we added Cannabis (MSOS), which was down -6% to -7% when I added to it and I would today on any correction. We added Cannabis on time before it went up in January, but now you get a correction. If you don't want to be long it, don't play the game that way, as Michael Jordan would say."

Our S&P Outlook

"You have a Wall Street panic attack because Wall Street has no idea how to model inflation. Just think about how bad that looks. Just think about how bad it was six weeks ago when Wall Street expected a 97% chance of a rate cut in March. We're not going to sit here and have recency bias, looking at every position Keith had wrong and anchor on those, we're going to the next play. We know exactly what to do with this CPI number. We're going to read and react to it with the things that we want to buy and sell.

You do have a higher low and a higher high in the Risk Range for the S&P 500, which would put it at an all-time high. Bullish trends that are signaling higher lowers and higher highs are the most bullish things especially when they're signaling higher all-time highs. Inexperienced bears have learned that the hard way. We're not bearish on the S&P 500. We're bullish.

The Risk Range implies -2.9% from the top end of the range so that's not to say there isn't downside. You never buy something at the top end of the range. If it's down -2.9% today, you can buy SPY but I've got plenty of other things that are better than that to buy.

Cannabis was in the top 5 ETFs out of 2000 that we analyze every day versus the S&P being 365th. It's a 'meh' versus what we could be buying here in the long/short book."

Reactions to Today's CPI Report

"Somebody got this CPI number by the way. There's no end. If you have feelings about insider information in the government or if you follow Unusual Whales on insider trading by Congresspeople, someone got this number yesterday. Of course they did.

Did you see what the U.S. dollar and stocks did yesterday? Did you see the VIX yesterday? It's back to bullish trend. If you didn't see that, get better. I've been saying it and I'll say it again: 'If the VIX is over 13.40, which it was yesterday, it's back to bullish trend.' That happened yesterday. I wasn't saying otherwise. So could you get to the top end of the range on the VIX? Absolutely at 15.

Russell 2000 volatility is still in the mid-20s by the way. That's not the all-clear signal. I know that it will trigger some people when I say things like, 'I'm not short it and I could get long it when I get the all-clear signal at some point this year.' That's more likely when we're coming out of the current monthly Quads and get into Quad 2 in the latter half of this year. We'll discuss that tomorrow in the Mid-Quarter Update to our Macro Themes presentation. I have a long history of buying my former shorts. I was bearish on Cannabis forever. We were back to neutral on Bitcoin on February 5, then flipped back to bullish. It's just data. No feelings. No politics. Just signal."

Real-World Inflation

"Look at the price of eggs – up 52% in the last month. That’s real-world inflation. ‘Don’t eat eggs,’ is what (Chicago Fed president) Austan Goolsbee would say. Or some jackass at the NY Fed at some point said, ‘You can’t eat our iPad.’ It’s just the arrogance, right? Shelter is running over 6% year over year (owner’s equivalent rent), which is understanding what real-world inflation at the apartment levels are. Inflation is up huge in the past three years. It just stopped going up at a faster rate, that’s what happened."


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