“The theory, the facts, the economic history are all one whole; each illuminates the others and is illuminated by it.”
-Milton Friedman
Imagine the study of economics (and the foundation of Fed Policy decision-making) was grounded in some combination of Benoit Mandelbrot and Milton Friedman principles? Blow your mind type stuff…
Sadly, as Steve Hanke (the living legend Professor of Applied Economics at Johns Hopkins) told me yesterday in a Real Conversation on HedgeyeTV, “depersonalizing it, The Quantity Theory of Money has basically been cancelled.”
Why? Well, there are many reasons for that. But let’s just consider the most obvious. There are 785 economists working at The Fed with a ratio of 48:1 Democrat Econs vs. Republicans. None of these people want to be held to public account for their “forecasts” or policies. They just want to support and get paid by The State.
Back to the Global Macro Grind…
Oh, you have big-time tenured Linear Econ Prof “contacts” that don’t like what I just wrote and/or what people like Steve Hanke say? Send them to HedgeyeTV. I’d be more than happy to have a Real Conversation with them for The People.
Do you think The ROC (rate of change) of the US Money Supply matters?
A) Via The Fed (printing) and blowout Fiscal Spending, Money Supply #accelerated to +27% in 2021
B) Steve Hanke was the ONLY economist who forecasted that would equate to +9% headline INFLATION
Every one of the SEVEN HUNDRED and EIGHTY-FIVE Fed “economists” got their impact on inflation completely wrong.
But, no worries, upwards of $2 TRILLION in US Deficit Spending and what Hanke calls the “long and variable lags between changes in the Money Supply and changes in Asset Prices”, will play out just fine over time. The Government’s got this!
Since The Fed was WAY late in realizing what their +27% Money Supply Growth policy was going to do to inflation, they started raising rates WAY late in The Cycle. That’s why plenty of things blew up in 2022.
Per Hanke, currently the US Money Supply is running DOWN -2% year-over-year… and if he was running the place (taxpayers would only need 1 economist, not 785), he’d have it steadied at around 6% Money Supply Growth (for now). Steady is different than the roller coaster of up +27% to down -5% (that’s where it is since March of 2022).
But he’s not going to run the place! He’s just going to educate you on something no one at The Fed wants to discuss: accountability for epic breakouts in inflation and deflationary busts.
Ok, great. Now what? Let’s go buy some stocks!
You know that, while the US won’t report an actual recession heading into the election, the US economy continues to #slow in ROC terms, right?
A) US Retail Sales #slowed to 0.65% y/y growth in JAN
B) US Durable Goods #slowed to a recessionary -0.62% y/y growth in JAN
C) Core Capex #slowed to 0.14% y/y in JAN
And some people are asking me why the Yield Curve has re-inverted by -30 basis points since JAN?
As a reminder, when the Fed is tightening:
A) Money Supply #slows
B) The Short-end of The Curve (2yr Yield) is pinned high
C) The Long-end of The Curve (10yr Yield) falls faster than the Fed can cut
So, once again, post the actual data being reported (slowing), the UST 10yr Yield is threatening to break @Hedgeye TREND support of 4.17%, while the UST 2yr Yield remains “comfortably” above its 4.45% TREND support.
We knew the US economy was going to slow in JAN/FEB. Why?
A) As you can see on today’s Chart of The Day (Slide 64 of the Macro Deck), the JAN/FEB comps are REAL tough
B) Those comps (or Base Effects) will only easy from here
It’s March, don’t forget. And, as always, it’s onto the #NextPlay in our portfolios.
Since we have Monthly Quad Nowcasts for a re-acceleration in the aforementioned data that’s been #slowing by May (we call that re-accelerating in GROWTH and INFLATION #Quad2), on days like yesterday, I was Buying-MORE Growth:
- Large Cap Growth (XLG)
- QQQ
- Healthcare (PINK)
I highlight those 3 because you’ll see they were my “biggest movers” in my Long Only Portfolio (see daily incremental positioning in our new Portfolio Solutions product). SPMO didn’t move as much because it wasn’t down as much.
I buy-MORE of what’s down the most (i.e. closest to the LRR = Low-end of my Risk Ranges).
That’s it. Since I’m not as “smart” as the 785 Fed Econs, I don’t debate myself intellectually on when I hit the buttons. I don’t assume Global Macro Economic dogma and/or risk management ignorance all the while.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 4.13-4.38% (neutral)
UST 2yr Yield 4.52-4.75% (bullish)
SPX 5014-5150 (bullish)
NASDAQ 15,774-16,299 (bullish)
RUT 1 (bullish)
Tech (XLK) 202-211 (bullish)
Insurance (IAK) 109.88-112.03 (bullish)
S&P Momentum (SPMO) 74.95-79.43 (bullish)
Healthcare (PINK) 29.50-30.64 (bullish)
Shanghai Comp 2 (bullish)
Nikkei 38,272-40,501 (bullish)
BSE Sensex (India) 72,489-74,280 (bullish)
DAX 17,290-17,851 (bullish)
VIX 12.80-14.96 (neutral)
USD 103.26-104.12 (neutral)
Oil (WTI) 76.66-80.27 (bullish)
Gold 2054-2150 (bullish)
Copper 3.81-3.92 (bullish)
Uranium (URA) 26.65-28.63 (bearish)
AAPL 168-179 (bearish)
NVDA 757-870 (bullish)
Bitcoin 56,907-69,504 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
