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Funny Fed

This note was originally published at 8am on February 28, 2014 for Hedgeye subscribers.

“To me being a gangster was better than being President of The United States.”

-Henry Hill


While I’m not sure if one of New York City’s most infamous mobsters (1955-1980) said it that way, Ray Liotta did in Goodfellas. So that’s good enough for me. Great flick. Just like the Bernanke and Yellen Fed... really funny.


Henry: “You’re a pistol! You’re really funny. You’re really funny!”

Tommy: “What do you mean I’m funny?”

Henry: “It’s funny, you know. It’s a good story; it’s funny, you’re a funny guy!”

Tommy: “What do you mean? The way I talk? What?” (everyone becomes quiet)

Henry: “It’s just, you know, you’re just funny – the way you tell the story and everything.”


Funny Fed - good


Janet "Mother of All Doves" Yellen is funny too.


She had us all right cracked up on the @Hedgeye HQ floor yesterday. The best part about her is that she actually believes what she said. On CNBC, Anthony, The Mooch, Scaramucci (not a character in the movie) called her an “intellectual stud.”




Back to the Global Macro Grind


But Janet, seriously, just get the heck out of here already. While it was fun buying everything other than US Dollars as you were outlining your qualitative policy to passively inflate, we have to go out there on the Street today and live in the real world.


Here’s what happened in the market yesterday as the Fed’s price fixing policy (“rate guidance”) took hold:

  1. Dollar Down
  2. Rates Down
  3. Stocks Up (sort of  - consumer and financial stocks still weak and down YTD)

This is very Q1 2011. The Dollar Down part isn’t funny because it’s an explicit #InflationAccelerating signal:

  1. Inverse correlation between USD and SPX (6 weeks) is now -0.85
  2. Inverse correlation between USD and CRB Commodities Index (6 weeks) is now -0.83
  3. Inverse correlation between USD and WTIC and Brent Oil (6 weeks) are now -0.85 and -0.90!
  4. Inverse correlation between USD and Gasoline (6 weeks) is now -0.92!
  5. Inverse correlation between USD and Gold (6 weeks) is now -0.93!

In other words, while she might look and sound like a crazy lady on TV, she actually has more power than the President of the United States at this point on the cost of living for Americans. This is plainly a Policy To Inflate. And it’s very dangerous, on many levels.


But don’t worry about the Dollar DOWN = Food, Gas, and Gold UP thing, because the “US stock market is up.” Yep, a whole +0.3% for 2014 to-date vs. the CRB Commodities Index and Gold +7.9% and +10.6% YTD, respectively.


After being “up” (in Burning Peso terms) +460% last year, Venezuela’s stock market was up +1.9% yesterday too. But Chavez was funny. Tommy: “Funny how? I mean, what’s funny about it?” (Goodfellas).


As John Allison states plainly in The Financial Crisis and The Free Market Cure, “countries do not go bankrupt the way businesses do. They typically hyperinflate – that is, print valueless money – and move to some form of authoritarian government.” (pg 8)


Authoritarian government? Think that’s funny? Or should we just take this un-elected lady’s word for it?


While the 80% of America who can’t invest in inflation gets jacked with it, we can make money (not funny for the “inequality” pitch). So protect yourself against US Currency Devaluation (new YTD lows this morning) and buy other countries’ currencies!


As you can see in the Hedgeye Asset Allocation Model:

  1. At 21%, Foreign Currency is back to my biggest weight (we’re long Euros and Pounds vs Burning Bucks)
  2. Commodities are 2nd at 18% (buy more Gold, Natural Gas, Oil, and Food Inflation on all pullbacks)
  3. Fixed Income and International Equities would be my 3rd favorite option

In other words, while the funny lady was cracking us all up yesterday, we didn’t jump into the market and buy things exposed to ~71% of the US economy (CONSUMPTION). We just ramped the #InflationAcccelerating position.


While it’s both comical and counter-intuitive to the Keynesian economist contingent that you buy bonds when inflation starts to breakout, the fact is that’s precisely what you do when the entire world knows the Fed has 0% credibility in fighting real-world inflation.


You buy commodities to own inflation. You buy bonds because you know that inflation slows growth. #InflationAccelerating to all-time bubble highs in 2011-2012 drove bond yields (growth expectations) to all-time lows (bonds to all-time highs) in late 2012 too.


Anthony: “Tommy, no, you got it all wrong”

Tommy: “You mean, let me understand this… ‘cause, ya know maybe its just me, I’m a little f’d up maybe, but I’m funny how?”

Henry: “Just… you know, how you tell the story”


Ben, Janet, and Tommy are Gangsta though – ask Cramer and The Mooch.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.64-2.79%
SPX 1827-1857

USD 79.77-80.31

EUR/USD 1.36-1.38

Pound 1.66-1.68

Brent Oil 108.05-110.71

Natural Gas 4.23-5.14

Gold 1306-1348


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Funny Fed - Chart of the Day


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$AMZN | Is It Worth the Extra $20?

Takeaway: Though a price increase likely should have happened years ago, Prime is good enough that an extra $20 bucks won't chase many away.

Editor's Note: Below is a brief, complimentary excerpt from Hedgeye Retail analysis. For more information on our services, click here.

Amazon Prime and Amazon Student Prime Membership Fee Changes


$AMZN | Is It Worth the Extra $20? - Amazon Prime image

  • "For the first time since it was introduced nine years ago, the price of Prime is going up. Existing Prime members will pay $99 per year on their annual renewal date and Amazon Student members will pay $49."
  • "The Prime Fresh membership fee will remain unchanged at $299."

Takeaway from Hedgeye’s Brian McGough:

Step 1 for Amazon was to get users hooked on its Prime service. Check. Mission accomplished.


Now, the company is going after price. And, while $20 may not seem like a big increase, when things change, people notice.


That being said, we have to admit that nine years is a long time to hold price steady. One could certainly argue that Amazon should have done this a number of years ago.


But all that really matters is what Prime offers. It's a sticky enough service that many won't be chased away by the $20 price hike.

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