“One third of the world uses wood and dung.”
-Alex Epstein
Instead of debating it alongside legions of Macro Tourists on CPI Day, I am long of WOOD. The Fed is long of dung.
WOOD, of course, is one of our many Core Asset Allocations to being Long Of Inflation during a re-acceleration in Global #Quad2 demand. WOOD = Global Timber & Forestry.
Should we just slap some solar panels on the tops of huts and “fix” the fact, as Alex reminds us in Fossil Future, that “billions of people are suffering and dying for lack of cost effective energy?” That’s dumb. Being Long of Energy (XLE) has been smart.
Back to the Global Macro Grind…
No matter what today’s CPI report says, we will be buying the damn dips in #Quad2 (and #Quad3) INFLATION.
For those of you who don’t see my family office’s (The MFO, eh!) Long Only account via Portfolio Solutions (published daily) here are most of my Long INFLATION Positions (ranked by SIZE as of yesterday’s close):
- Insurance Stocks (IAK and KBWP)
- US Energy MLPs (AMLP)
- Large Cap Global Energy (XLE)
- Gasoline (UGA)
- Commodities Basket (GSG)
- Saudi Arabia (KSA)
- Timber! (WOOD)
- Copper (CPER)
- Silver (SLV)
- Cannabis (MSOS)
- Shipping (BDRY)
- Uranium (URA)
- Bitcoin (IBIT)
- Housing (ITB)
Hot damn! Did you see Eddie Murphy’s #SNL of “James Brown’s Celebrity Hot Tub Party”? Instead of sweating what the Old Wall Econs have to say about CPI today, you should just get in there already and buy some serious inflation.
“Get in the hot tub, make me sweat!”
What’s even funnier about today’s CPI print is that it’s likely to be characterized by Old Wall Media (CNBC) as “better than expected” (i.e. cooler than what consensus expectations heated up towards).
That’s right. That’s The Game. And you better know how to play it.
Coming out of what we call “The Turn” from the lows of the Global Industrial, Manufacturing & Commodity Cycle, there wasn’t 1 consensus Old Wall or Federal Reserve Gnu Econ who had a headline CPI forecast greater than +3.5% year-over-year.
Now… drumroll… Bloomberg’s Consensus for today has magically ramped to 3.7%.
And… anything in line with or slightly less than that (which, ironically is where our Nowcast is for this month)… will likely be declared as another “victory over inflation” and gives the wildebeest the green light to “cut” their way into the lion’s den!
G-r-r-r-eat!
Then what? Super Short-Dated Panic Puts (consensus hedges into the CPI) will likely get rapidly monetized, “which would allow dealers to repurchase their delta positions and inject some bullish flows into the market.” -Tier 1 Alpha
Cool. So you get the “better than expected” commentary with price action to support it. You go Fed Rate Cut Pros, you go!
Then there’s what really happens after all that. And, I know, I lost most of the wildebeest with the Options/Flows commentary that’s linked to market positioning on Macro Tourist Event days… but that’s ok.
What happens next is Rate Cuts perpetuating MOARRR INFLATION!
Yes, Jedis, you do not succumb to the dung narratives on inflation. You are getting good at this. You are readying your Full Investing Cycle Portfolios for the next wave of Old Wall revisions to their dead-in-the-water Q3 and Q4 “forecasts.”
Looking at Bloomberg Consensus for CPI (see Chart of The Day) vs. Hedgeye’s Nowcasts:
A) They’re already admitting their Q2 of 2024 “forecast” for 3.00% headline CPI is dead wrong
B) Their Q3 of 2024 “forecast” has CPI magically collapsing to 2.8% (from 3.5-3.7% on today’s print)?
C) Their Q4 of 2024 “forecast” has CPI FALLING AGAIN towards 2.70%!
With one of our top leading indicators (in front-running our own INFLATION Nowcast) having INFLATED +27% in the last 3 months (WTI Oil), it’s mathematically impossible for INFLATION to SLOW like that in the 2H of 2024.
Why? Shhh, don’t wake the wildebeest, but here’s the answer: Base Effects.
Immediately following this morning’s Tourist Hot Takes, a -220 basis point EASING of Base Effects (for CPI) will take hold over the next 11 months.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 30yr Yield 4.35-4.61% (bullish)
UST 10yr Yield 4.18-4.48% (bullish)
UST 2yr Yield 4.55-4.85% (bullish)
High Yield (HYG) 76.59-77.50 (bullish)
SPX 5151-5279 (bullish)
NASDAQ 16,075-16,503 (bullish)
RUT 2040-2130 (bullish)
Tech (XLK) 204-210 (bullish)
Insurance (IAK) 113.11-118.01 (bullish)
BSE Sensex (India) 73,009-75,111 (bullish)
DAX 18,016-18,587 (bullish)
VIX 12.02-16.99 (neutral)
USD 103.60-104.85 (bullish)
Oil (WTI) 82.23-88.54 (bullish)
Gold 2 (bullish)
Copper 4.06-4.40 (bullish)
Silver (SLV) 25.49-29.16 (bullish)
Bitcoin 64,900-72,004 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
