This note was originally published at 8am on April 10, 2014 for Hedgeye subscribers.
“And oftentimes excusing of a fault, doth make the fault the worse by the excuse.”
As we high-earning commoners read the inflationary “minutes” from our un-elected overlords @FederalReserve yesterday, we gave thanks and praise for not being the 80% of America that will be plundered by them.
To be, or not to be plundered (by the aristocracy)? That remains the question that my man William asked The People over 400 years ago. In storytelling terms, Shakespeare’s questioning of the perceived wisdom of his day is timeless.
The aforementioned quote comes from The Life and Death of King John. But what will become of thy modern day central planning Queen Yellen? “Here once again she sits; once again crown’d”… and in real-life terms, the poor are getting hungrier…
Back to the Global Macro Grind…
BREAKING: “Beef Price Hits All-Time High” –LA Times
And whilst all-time is by many considered a very long time, whatever you do, do not call this #InflationAccelerating! Immediately after the Federal Reserve released their groupthink meeting “minutes” yesterday, commodities ripped to freshly squeezed YTD highs.
Orange juice (+18% YTD) or Coffee (+68% YTD) for breakfast anyone?
I know. Silly Mucker. This, according to the Keynesian jesters in the high court of devaluing the Dollar, is “non-core” to American life. Food prices +20% YTD (CRB Foodstuffs Index) and the broader commodities complex (CRB Index, 19 commodities) +10.7% YTD (versus the almighty Dow down YTD) is nothing but a manifestation of my own cherry picking. At least I can eat those.
“But that your royal pleasure must be done, this act is as an ancient tale new told.” –Shakespeare
And that tale is called a Policy To Inflate. Calling it by any other name, would be un-American.
To review what brainiacs in academic call “causal”, this is how the Policy To Inflate works:
- The Fed says something along the lines of price fixing the rate of return on American Savings at 0%, forever
- Then the Global Currency Market reads price fixing as US Dollar Bearish (that’s why we have a 22% allocation to other FX)
- Then the Commodity, Gold Bond, and #YieldChasing community buys everything they can with Burning Bucks
For the 20% of us who can buy inflation and slow-growth, maybe. For the 80%, not so much. That’s why the emerging “inequality” in this country that has been perpetuated by both the Bush and Obama administrations is largely the Fed’s Fault.
Unfortunately, you can’t eat an iPad.
If you’re in the top quintile of Americans (yes, most of you reading this are), you don’t have to worry about your kid dropping the next $700 burning bucks on the Qe6 iPhone upgrade either – you just need to keep buying inflation in order to finance his/her spending:
- Gold up another +0.7% this morning to +10.1% YTD
- Slow-growth Utilities (XLU) up another +1.0% on the Fed “minutes” yesterday to +10.3% YTD
- #YieldChasing REITS up another +0.7% yesterday to +10.3% YTD too!
Yes, there is something eerie about all three of these things being up the same % per day and YTD (Hint: it’s called machines front-running the Fed – which, in turn, slows US real consumption growth).
In real-life, you’ll be getting paid in nominal terms today. Nominal means whoever is writing the checks doesn’t adjust your weekly comp as the value of your purchasing power falls (i.e. the things that you need to buy go up in price).
Nominal is always obfuscated by money printers and plunderers alike as real growth. As you can see from the Chart of The Day, nominal US consumption growth is on a death path to perdition (i.e. it’s both secular and cyclical). That’s largely the Fed’s Fault too.
Rather than rant any longer (see our newly minted Q2 Global Macro Themes slide deck for all the non-Fed propaganda details – 48 slides Sales@Hedgeye.com), I will leave you with the only solution to all of this (from King John):
“What you would have reform'd that is not well,
And well shall you perceive how willingly
I will both hear and grant you your requests”
Unfortunately all that is not well is not being reformed. Neither your Republican nor Democrat governments are hearing your requests. Both parties support weak Dollar policy. Excusing the Fed’s Fault this time will only make all of this worse.
Our immediate-term Global Macro Risk Ranges are now as follows:
UST 10yr Yield 2.63-2.75%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer