“He is striking at everything. I am afraid of this man.”
-Thomas Gibbons, 1822
That’s the opening line to Part One (titled “Captain” – 1) in the latest brick I’ve cracked open, The First Tycoon – The Epic Life of Cornelius Vanderbilt, by T.J. Stiles. If you’re into hard core capitalism, this is where it’s at.
That’s not to say I’m not into Grubhub.com (GRUB) going public this morning (I couldn’t make that up if I tried)… or any company that doesn’t make any money for that matter. If the public is dumb enough to pay 15-20x revenues for companies with no earnings, there is a precedent for that. #1999
There’s also a longstanding history in America of hard core capitalists making hard core profits. Admittedly, I have a confirmation bias towards them. As William Gibbs McNeil said about Vanderbilt in 1840, “I’d sooner have him with us, than against us.” Amen to that.
Back to the Global Macro Grind…
As the European Central Bank (ECB) reduces the size of its balance sheet, Yellen’s Federal Reserve continues to ramp up the size of hers. At $4.2 TRILLION, I was perusing the Fed’s balance sheet last night. It was up another +$9.5B wk-over-wk, and +$1 TRILLION year-over-year. Socialism, baby!
Is that a bad word?
Or should we use statism? What else would you call an un-elected agency (the Federal Reserve), whose mandate is to get tighter as inflation accelerates and the economy expands, getting looser for the sake of the 1%-10% of the population that benefits from asset price inflation?
- The US economic expansion is now going into its 59th month!
- Pardon? Yes. Take out all the spew politicians have been whining about since missing the buying opp of a lifetime in 2009.
- And focus on what actually happened. In gravity speak, this is called a cycle (see #history table in today’s Chart of The Day)
Oh, and what you’ll note in the historical data is that the average US economic expansion following a recession is also … drum-roll… 59 months!
In other words, during this epic expansion, the Fed:
- Didn’t see any inflation, at the all-time-highs in US energy, food, education, rent, etc. inflation – so it didn’t see a need to tighten
- Won’t ever see inflation, until we have another inflation crisis
- And is now tapering (late) into what will likely be a US consumption growth slowdown
Yep, that last part is the least consensus of everything else I wrote, primarily because my conclusion is embedded in a forecast that isn’t consensus – i.e. that US #InflationAccelerating is finally slowing US consumption growth.
Hard core Keynesianism, this view is not. And what do you do if you share it? Do more of what you’ve been doing for 3 months:
- Buy Inflation (Short US Dollars, and Buy Commodities and/or anything with pricing power)
- Buy Bonds (because the Fed has 0% credibility and/or intention to fight inflation)
- Buy Foreign Currencies who has monetary policies that are building credibility
That’s why I feel pretty good about selling US Buy-The-Damn-Bubble #BTDB Growth Equities (everything we liked last year), booking those gains and plowing them back into the former Bernanke Bubbles (Food, Gold, Utilities, REITS, Bonds, Emerging Markets, etc.) that blew up in 2013.
The inflation topic drives people who take the Fed’s word for it (that there is no inflation) squirrel. But those are mostly people who are educated with a serious level of Western Academic Groupthink and don’t think for themselves. If you ask objective people, they know the government is lying to them.
We did a poll yesterday (powered by Polstir, here) that asked a very basic question: Do you trust the government’s inflation numbers?
87.5% responded no.
Yes Mr. and Mrs. Big-Government-Made-Up-Data, Hedgeye is 6 years older (with much wider distribution) than when we called you out on the last inflation-slows-growth cycle reality (our US consumer recession call in early 2008). We’ll be striking at everything you say going forward. Be afraid of the common man.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.66-2.82%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – April 4, 2014
As we look at today's setup for the S&P 500, the range is 31 points or 1.10% downside to 1868 and 0.54% upside to 1899.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.34 from 2.34
- VIX closed at 13.37 1 day percent change of 2.14%
MACRO DATA POINTS (Bloomberg Estimates):
- 8:30am: Change in Nonfarm Payrolls, March, est. 200k (pr 175k)
- Unemployment Rate, March., est. 6.6% (prior 6.7%)
- 1pm: Baker Hughes rig count
- President Obama meets with Tunisian Prime Minister Mehdi Jomaa
- Secretary of State John Kerry on trip to Morocco
- FY15 budget panels/testimony:
- 9am: House Appropriations hears from Attorney General Eric Holder on Justice Dept. request
- 10:30am: House Armed Svcs hearing on FY15 budget request for intelligence activities
- Deadline for EPA employees to take up option to retire early, take buyout worth up to $25k
- U.S. ELECTION WRAP: Rogers, Camp Retirements to Test Boehner
WHAT TO WATCH:
- Employers probably boosted pace of U.S. hiring for 3rd month
- IMS Health prices IPO of 65m shrs at $20/shr
- GrubHub sells 7.41m shrs at $26/shr in IPO
- Meda chairman confirms prelim. Mylan contact, Direkt reports
- Lenovo-IBM deal under U.S. scrutiny over Pentagon server use
- Jennifer Lopez-Backed NuvoTV said in deal to buy MSG’s Fuse TV
- Apple loses patent-use bid in $2b Samsung Trial
- Bank of America discussing $800m settlement with CFPB: DJ
- Delta may buy as many as 50 new wide-body jets: WSJ
- Boeing considers buying supplier Mercury Systems: Reuters
- Liberty Global unit eyes German stores amid O2, E-Plus merger
- GE chooses H.K. for aircraft leasing co.’s $700m IPO: IFR
- German Feb. factory orders beat est.
- JPMorgan folds London Whale investment office into another unit
- RBS names Credit Suisse’s Stevenson CFO
- IMF Meeting, Fed, China Exports, Ally IPO: Wk Ahead April 5-12
- CarMax (KMX) 7:35am, $0.54
- Synergy Resources (SYRG) 6am, $0.09
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Aluminum Heads for Biggest Weekly Advance Since November 2012
- WTI Crude Rises a Second Day Before U.S. Data; Brent Advances
- Wheat Fields See Worst Damage in Five Years on Drought to Freeze
- Drones Portend High-Tech Future for Dangerous Mines: Commodities
- Port Hedland Iron Ore Shipments to China Reach Record on Demand
- Wheat Set for Biggest Weekly Drop Since January on Rain in U.S.
- India’s Gold Imports Said to More Than Double in March From Feb.
- Robusta Coffee Rises After 23% Stockpiles Draw; Cocoa Advances
- Rebar in Shanghai Rises for 2nd Week on Iron Ore, China Policy
- Coffee Exports From India Dropping as Rains Shrink Harvest
- World’s Biggest Coal Terminal to Review 2015 Goal on Power Cut
- Pollution Traders Bullish as Europe Squeezes Permit Glut: Energy
- Gazprom 81% Ukraine Gas Price Surge May Open Door for RWE, PGNiG
- Gold Prices Pare Weekly Decline in London Before U.S. Jobs Data
The Hedgeye Macro Team
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Hedgeye CEO Keith McCullough spoke with Fox Business' Liz Claman earlier today about why investors should be concerned about recent equity and bond flows.