This note was originally published at 8am on June 23, 2014 for Hedgeye subscribers.
“Your love makes me strong; your hate makes me unstoppable.”
If you’ve been following Team USA in the World Cup and didn’t know who Ronaldo was, now you know. Ronaldo’s sick pass in the final minute of last night’s USA-Portugal match reminded the ladies who is one of the best looking ballers in the game too!
To be fair, while he did get expelled for throwing a chair at his teacher, Ronaldo isn’t exactly a thug. His Mom was a cook and his Dad was a municipal gardener and they named him after Ronald Reagan. In 2009, the young Manchester United star with the flow became the highest paid footballer in the world.
Ronaldo plays for Real Madrid now and gets paid in a strengthening currency – British Pounds. After taxes, he makes 21M Pounds/year. That’s earnings, before-inflation-debauchery-accelerating (EBITDA - i.e. the unstoppable and un-legislated worldwide commodity inflation superimposed on poor people by the Fed).
Back to the Global Macro Grind…
Unlike the US Federal Reserve, who knows how to trick people who wouldn’t know otherwise into believing that there is no inflation, after he shocks you with dramatic goals like he did yesterday, Ronaldo says “I don’t think about one trick or the other; they just happen.” #talent
As the Fed weakens the US Dollar, inflation just happens too:
- Last week the US Dollar Index was -0.3% to $80.33
- The CRB Commodities Index (19 Commodities) was up another +1% week-over-week to +11.8% YTD
- CRB Food Index was up another +2.1% on the week to +22.8% YTD
Yep, as Hemingway might have said, at first inflation happens slowly – then all at once. Here’s what some of the sub-components of commodity-inflation-expectations did AFTER the Fed cut its growth forecast and eased last week:
- Silver +6.1% on the week to +7.4% YTD
- Sugar +5.0% on the week to +10.0% YTD
- Gold +3.2% on the week to +9.2% YTD
- Nickel +2.7% on the week to +32.3% YTD
- Brent Oil +2.0% on the week to +5.8% YTD
True. Brent Oil isn’t really up that much, compared to Nickel. But West Texas Crude is up more than Silver, at +11.5% YTD! And, despite the bearish supply views of Consensus Macro on most things metals, I’m thinking +32.3% is getting someone paid in size being long #InflationAccelerating YTD.
But, but, “the Dow is up” … Uh, ok. It’s up a whopping +2.2% YTD.
If you want to be a real baller and be long the stuff in the US stock market that’s crushing a low-single digit performance # for the YTD, you need to be long of both inflation and the slow-growth it drives into the consumption core of America:
- Energy Stocks (XLE) up another +2.6% last week to +14.0% YTD
- Slow-growth Utilities (XLU) up another +2.2% last week to +14.5% YTD
- REIT stocks (MSCI Index) up another +1.6% last week to +15.8% YTD
Exactly. As long as the Fed won’t call the all-time highs in US Rents “inflation”, just buy exposure to the REIT and/or private equity firm that is going to jam his renters with more of it.
Other than currencies, commodities, and stock style factors, there are of course other ways to monitor what the real-time market thinks about #InflationAccelerating.
Five-year breakevens, for example, were up a full +11bps (basis points) last week to +26bps YTD. You can look at a chart of TIPs (Treasury Inflation Protection, which we continue to be long of on Real-Time Alerts terms too).
Or you can look at things like hedge fund net positioning via CFTC (Commodities Futures Trading Commission) net long and short positions:
- Gold’s net long position popped +15,292 to a net LONG position of +66,572 contracts last week
- Oil’s net long position ramped to an all-time high of +478,907 net LONGs (+39,087 net longer on the week)
Or you can just call all of this what it is. Because the only thing more dangerous than having the ball on Ronaldo’s foot in the final minutes of a game that is about to go bad is having both Iraq and the Fed come at you on oil inflation, all at once…
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.47-2.64%
WTI Oil 106.01-107.98
Best of luck out there this week,
Keith R. McCullough
Chief Executive Officer