Professional Reading

“I look forward with the greatest pleasure to the use of my books at night at home.”

-William Taft


That’s a quote from Doris Kearns Goodwin’s The Bully Pulpit (pg 108) where she establishes one of the similarities that Presidents Teddy Roosevelt and William Taft shared from the very beginning. They both loved to read.


On the idea of Professional Reading as a leadership and risk management tool, one of my good friends, Rory Green, sent me a note this weekend highlighting the thoughts of retired US Marine Corps General, James Mattis.


The problem with being too busy to read is that you learn by experience, i.e. the hard way. By reading, you learn through others’ experiences, generally a better way to do business; especially in our line of work where the consequences of incompetence are so final for young men.” #Truth


Back to the Global Macro Grind


A small but critical portion of my Professional Reading includes staying on top of consensus. Two of the most important sources of #OldWall Street and #KeynesianEconomics consensus are:

  1.  Barron’s
  2.  The Economist

That’s not to say that every once in a while these publications don’t crush it with a forward looking idea (like Barron’s highlighting our bearish work on McDonald’s (MCD) or MLPs Linn Energy and Kinder Morgan!). It’s just to say these are places where you’ll find consensus.


So what is consensus right now on the two most important drivers of our Global Macro Model – Growth and Inflation?

  1. US GROWTH: cover of Barron’s “Outlook 2014” this weekend = “Bullish On 2014
  2. INFLATION: mid-November cover of The Economist = “The Perils of Falling Inflation

And while we’ve been the US growth bulls (and inflation bears) for the last year, our model rolls into 2014 with the following views:

  1. US #GrowthSlowing from its Q313 highs (GDP to be reported on Friday around +3.6%)
  2. #InflationAccelerating from its Q413 lows (bottoming in OCTOBER at 1.0% y/y CPI)

On US growth, Darius Dale published a full research note to our Institutional subscribers on Thursday titled “#GrowthSlowing, Lots of Charts.” If you’d like a copy of that note and what’s embedded in our model’s expectations just ping . One of the baseline assumptions in our model is that inflation slows real (inflation adjusted) growth.


Q: What’s the leading indicator for inflation?

A: Central planners devaluing the purchasing power of The People via its currency


And, not to be confused with US #GrowthAccelerating (like it is in Germany this morning with a PMI of 54.2 for DEC vs 52.7 NOV = #StrongEuro), what’s been happening in the USA for DEC to-date is #InflationAccelerating:

  1. US Dollar = DOWN (for 5 weeks in a row ahead of the Fed not tapering as it should have)
  2. Commodities = UP (CRB Commodities Index = +0.4% last wk and +1.7% for DEC to-date)
  3. US Stocks = DOWN (SP500 = -1.6% last wk and -1.7% for DEC to-date)

I know, I know. What’s jamming the American people with a little food (coffee prices +8% last week) and gas (natural gas +6% last week) inflation ahead of the holidays if everyone @FederalReserve is taking car service to work and living large at holiday cocktailers?


Well, in our model it matters. It especially matters on the margin when:

  1. GROWTH’s slope is topping and
  2. INFLATION’s slope is bottoming

Perversely, a Fed no-taper for DEC will only perpetuate this. The US Dollar is down another -0.25% this morning as it tries to front-run the Fed’s conflicted and compromised political decision to not taper when it should have been tapering since September.


But, for now, asset inflation (especially commodities) loves that. So don’t worry about inflation slowing growth in 2014, because no one in the Barron’s survey other than Jeff Knight (buy-sider from Columbia Management) thinks it will either.


According to Barron’s, “Wall Street’s top strategists” (which include Morgan Stanley’s Adam Parker who had a 1434 SP500 “target” for 2013 at this time last year; the mean “target” was 1531)… “see a sense of normalcy returning to the financial markets next year.”


So we’ll roll with a call for accelerating volatility in the New Year too.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr yield 2.78-2.92%


VIX 14.21-16.35

USD 79.65-80.46

Brent 108.61-110.44

NatGas 4.21-4.51


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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