This note was originally published at 8am on November 14, 2013 for Hedgeye subscribers.
“Where is the knowledge we have lost in information?”
That’s the opening quote from the latest book I cracked open on an airplane this week – The Idea Factory, by Jon Gertner. I did 3 cities (Kansas City, Denver, and Minneapolis) in 3 days and came up with a new idea for the next crisis – prayer.
Whether you like it or not; whether you have realized that the Fed completely missed its opportunity to taper or not; whether you agree that the US government is getting dumber with market and economic information or not – newsflash: it doesn’t matter.
All that matters today is what the next un-elected-central-planner-in-Chief-of-your-hard-earned-currency thinks. While hope is not a risk management process, many still hope Janet Yellen won’t be as “dovish” as Bernanke. If she walks and quacks like a dove, she’s not a hawk. She will redefine a new species of accountability ducking doves.
Back to the Global Macro Grind…
In textbook Fed front-running form, the US stock market got a leak intraday yesterday as to what Yellen was going to say and ripped to another new all-time high. Gold and Bonds went up too. Everyone was a winner!
But who is everyone?
I think we all know the answer to that question. And this, sadly, is not a new idea in the world either. Marxist/Socialist political regimes have plundered The People across centuries. The power of information is no longer in entrepreneurial ideas, it’s in having insider knowledge on the next central plan.
Since Obama didn’t get the asymmetric risks embedded in Obamacare, there’s less than a 1% chance he will be in the area code of comprehending the long-term TAIL risks associated with the Bernanke Bond Bubble. But don’t worry about that, for now. Buy the damn bubble (#BTDB), and pray you aren’t the one without a chair when the music stops.
I’m not kidding, as my Canadian sniffer caught a downwind leak of the Yellen’s pending plan, I:
- Bought Bonds (TLT)
- Bought Gold (GLD)
- Bought Utilities (XLU)
In other words, I bought everything that I was short for the better part of the last year on my other 2013 New Idea that the Fed was going to finally get out of our way (and taper).
Do you think I’m crazy? I do.
In fact, I spread a full 1/3 of the Hedgeye Asset Allocation across 4 asset classes at 8% each. Crazy Eights!
- Commodities 8%
- Fixed Income 8%
- International Equities 8%
- US Equities 8%
With a little dovish leaky-peaky from the boys who worked for and/or hang with Dudley’s Goldman boys at the New York Fed (I believe they are all old and young boys, but don’t quote me on that), why not roll the bones? Spreading our bets around a casino where everyone wins takes down our “VAR” too!
People who don’t make money in down markets love to talk about “Black Swans”, but they have yet to make it a known known to The American People that this eventual bond market crash isn’t a TAIL risk at all. Our risk management process considers it a rising probability in 2014-2015.
And what are all the poor souls who are long the PIMCO “total return” fund going to do when they realize that it was lathered up with the a sub-asset “class” within the Bernanke Bond Bubble that people won’t be able to get out of (MBS)?
Or was the plan always that the New York Fed was going to buy the Bond Bull Lobby time to get out? Was the plan to change the goal posts every time non-linear economies surprise these central planners’ forecasts? Evidently, it was.
So pull up a seat. Meet your maker -Janet Yellen - the Mother of All Doves. She’ll outline why, despite the USA running +2.84% GDP in Q313, that her unaccountable definition of the economy is “far from potential.”
She’ll make up some new rules. She’ll look real serious about it too. Because when her MBS (mortgage backed security) bond bubble pops, this is going to be very serious. That’s why my best New Idea is recommending prayer.
Our immediate-term Risk Ranges are now:
UST 10yr Yield 2.66-2.82%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer