The Implications of Larry Summers

Takeaway: Nobody in the history of mankind has been more dovish than Ben Bernanke. On the margin, Summers is hawkish.

Editor's note: What follows below is a brief excerpt from Hedgeye CEO Keith McCullough's Morning Macro Call. For more information on Hedgeye's research products please click here.

The Implications of Larry Summers - summ

Good morning. The top three things in my notebook this morning are definitely being infected, affected, defected by the concept of Larry Summers being the new head of the Fed.

Now I don’t personally like the guy; we don’t hang out. But, these top three things, Gold, Oil and 10-Year Bond Yields—some of these things don’t like Larry Summers.

Larry Summers—are you the enemy of Gold? Look at gold just getting smoked.

As you know, gold has been crashing this year.  It’s down 22% for the year-to-date.

This concept that Larry Summers would take over from Ben Bernanke—of course what matters most is what happens on the margin—Summers would be marginally hawkish. There is no doubt about that.  And, on an absolute basis versus Janet Yellen—all of Larry Summers’ issues set aside—he would be uber-hawkish versus her.

Bottom line is that this would be uber-bearish for the BFF (“Best Friend Forever") of gold that is Ben Bernanke. They are BFFs.  

It’s over.

The Implications of Larry Summers - drake1


Editor’s note: This next excerpt comes from a question asked by a listener at the conclusion of Keith’s remarks.


QUESTION: Why does everyone believe that Larry Summers will be hawkish? Isn’t he part of the same Ivy League network of Keynesian economists that produced Ben Bernanke and Paul Krugman?

MCCULLOUGH: Oh, of course! Do not confuse this man as being anything other than who he is.

But everything that happens in Macro, happens on the margin. I did not learn this at Yale by the way. All of these guys are Keynesians. It’s what derivative of a raging Keynesian you are that matters most.

We’re talking about Ben Bernanke and Janet Yellen being about as far left on the spectrum of that weigh scale that you can find.

There are a few things about Larry Summers to note. First off, he’s not that far left. Second, he likes to be very prickly, about what he thinks and when. And number three, he’s not going to pander to some regional Fed chair guy like Kocherlakota from Minneapolis.

Summers is the kind of guy who went in and told Obama, “Look, I’ll end the madness of it all. I’ll end some of the bubbles. I’ll be prickly.” Now, I’m adding an “L” and a “Y” there as opposed to saying what you really might call the guy.

Look nobody in the history of mankind has been more dovish than Ben Bernanke. So on the margin, Summers is hawkish.