This note was originally published at 8am on July 18, 2013 for Hedgeye subscribers.
“I only take Viagra when I am with more than one woman.”
Obviously Jack Nicholson doesn’t trade Oil or Gold futures. All you need to bid up the futures curve of inflation expectations are a few Washington whispers and some dovish Bernanke Blue Pills – and, oh baby, will some of the old boys in Chicago chase!
With time, trading losses, and substance abuse, I’ve seen some men in this business get dumber, faster. Yesterday, one of my Senior Analysts on the Hedgeye Macro Team, Christian Drake, reminded me why: “Keith, neuro-plasticity and de Novo brain cell creation are generally fixed by the time you enter adulthood… except for one notable exception:”
“The hormonal milieu present in pregnant women works to create new neural circuitry and further develop parts of the brain responsible for reasoning and problem solving. So, if you’re a female and need a cerebral kick-start, get pregnant. If you’re gender deficient (i.e. male) you have to resort to more nuanced methods of warding off cognitive deflation.”
Back to the Global Macro Grind…
“Cognitive Deflation”. Bro, that’s what I’m talking about. I love that stuff!
On Twitter, I affectionately call some of the people I do not know, “bro.” If I’m really in a good mood, I might call one of these beauties something like “princess.” But that’s a special name that usually calls for very special circumstances.
When it comes to fading consensus, you need to pay attention to where the bros are at all times. If Bernanke understood how markets trade, he’d pick up on this pretty quickly.
Toning down the raging net long position of over +325,000 contracts in Oil futures and options contracts (and giving Americans a long awaited Tax Cut at the pump), would be easy. Just have Obama tell the bros that Bernanke is out of pills.
A version of that happened yesterday. Since the last thing Bernanke actually wants is for Gold Bond bulls to crash again, the shift in expectations was at first very subtle – then it happened all at once.
Viagra really should be sponsoring C-SPANs Congressional testimony coverage at this point. Here was the play-by-play:
- Bernanke’s testimony said nothing new (he wasn’t incrementally more dovish than when he spoke last time)
- The US Dollar Index immediately went from red to green
- And both Gold and Oil futures went from green to red
Both Gold and these bastardly looking Gold Miners (GDX) then started going really red – and my contra-stream of bros on Twitter were quick to say “buy the dip, he’s going to say something else.”
He didn’t. Then there was more red, the bros turned into crickets, and the blue pill rally was over.
I know. It’s so anti-climactic at this point that it could make you cry. But why should it? Why do we need the entire world to wake-up every morning with the hope of a false dawn? Why has this game turned into purely front-running the Fed?
As Melvin Udall (Jack Nicholson in As Good As It Gets) said to his dog Verdell, “Don’t be like me. Don’t you be like me!” And since we aging men don’t have much upside left, we need to switch it up from time to time anyway.
The upside to the Hedgeye plan for Cognitive Deflation (i.e. getting it through the thick skulls of the bros that Bernanke is done and Oil could go to $65), would be the most exciting bull market catalyst for US stocks of the year – sustainable growth!
Think it through. Both Reagan and Clinton did:
- Average Price of Oil 1983-1989 = $22.16/barrel
- Average Price of Oil 1993-1999 = $18.63/barrel
Both Presidents signed off on massive #StrongDollar Tax Cuts that drove US Consumption growth through the roof:
- Average US GDP Growth 1983-1989 = +4.31%
- Average US GDP Growth 1993-1999 = +3.84%
So what say you to leader of the bros, President Obama?
I say it’s time to get rid of this un-elected academic. The bros can handle it. They are big boys who can always find something else to chase. Buying into any gold rally lasting for more than 4 hours requires medical attention anyway.
Our immediate-term Risk Ranges are now:
UST 10yr yield 2.46.-2.75%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer