“I have eyes like those of a dead pig.”
-Marlon Brando
Bulls, bears, hawks, doves, pigs – Wall Street has all kinds of animals to make movies about. But, when it comes to the cooing kind, fully feathered in all her linear lagging labor economist glory, Janet Yellen is the Mother of All Doves.
It’s been a while since I ripped on the Fed, so bear with me this morning…
Bernanke clearly had his fake-news issues as he was devaluing the US Dollar to 40 year lows (suggesting there was “no inflation” in 2011 at the all-time high for Commodities). But Janet, wow – what a forecasting track record!
It takes a very special Obama economist to not only miss calling the epic deflation of that Dollar-driven-asset-inflation, but to then miss an entire cyclical recession, then miss calling both growth and inflation accelerating like it has in the last 3 months.
So, now… after missing a layup opportunity to raise rates into that acceleration, I think she’s just a Dead Dove Walking.
Back to the Global Macro Grind…
What more could Dollar Doves want? They have Trump’s Tweets, Navarro calling the Euro “grossly undervalued”, and Yellen Cooing herself into retirement. Oh and a down stock market too (SP500/USD correlation since Trump’s win = +0.80).
Her big “pivot” yesterday was… and brace yourself for this… that instead of saying she “expected inflation to rise to 2%” that it “will rise to 2%.” Yep. That had to be the best call of the year (headline CPI is already +2.1%).
Saying something will happen, after it happens is classic Old Wall establishment.
And I’m sure she’ll get paid, in size, to do speeches once her time at the Fed is up. Trump has at least 4 Federal Reserve appointments to make, including Chair and Vice Chair next year. God speed, Janet. God speed.
Back to the inconvenient truth that correlated to Trump’s #StrongDollar move - the damn data:
A) SP500 Earnings accelerated to +3.9% year-over-year growth last night (224 of 500 companies have reported)
B) ADP Employment #accelerated from +151,000 in DEC to +246,000 in JAN
C) ISM (USA) #accelerated (again) from 54.5 in DEC to 56.0 in JAN
Within the widely watched ISM report were some massively huge ramps:
- “Current Production” ramped over 60 for the 1st time since Yellen missed #Deflation developing in late 2014
- “Employment” ramped to a 30-month high reading of 56.1 (at this time last year that reading was 46.2)
- “Prices Paid” ramped like no other ramp, to a herculean level of 69.0!
Just in case you didn’t know what the ISM is, it’s what we call a “diffusion index.” Basically a bunch of people get surveyed about conditions within their business. Readings of 40-50 are low and readings of 60-70 are high.
ISMs, PMIs, etc. are mean reverting by nature. Once they get into the mid-40s and everyone is all beared up, they tend to bottom and bounce. Once they get into the high-60s and everyone is all bulled up, they tend to top and roll.
So how the heck does the “data dependent” Federal Reserve get away with missing both crashes and ramps in major data series like this? Ramps, you know, like astronomically obvious rate-of-change ramps?
A: The Fed doesn’t do rate of change. Believe me.
Someone send this to Trump for me, please. Because if he isn’t completely full of it on the branding of MAGA (make American great again), he absolutely has to change the complexion, culture, and process of The Federal Reserve.
Non-fake news fact: Down Dollar, Down Rates policies did not make America great again.
What they did was perpetuate massive asset-inflation bubbles that systematically imploded on different durations. Then that forced the Fed to try to reflate those bubbles doing the same damn thing, going “dovish” (in Dollars), again, and again…
Then what? The People who got plundered got mad. And Trump won.
Why did he win? Because we (Washington and Wall Street – I have offices in both places) got paid by owning the asset inflation as The People paid for that in real-cost-of-living terms.
Yes, yes, yes. Americans get paid in Dollars. Devaluing their hard earned dollars raises their cost of living. So, believe me, if Trump’s monetary policy looks anything like Bush or Obama’s (i.e. the same QE creates demand crap), MAGA is dead too.
Rant over. (Bannon, instead of reading that Zero Hedge perma-bear spin, I hope someone gets this to your desk)
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.40-2.56%
SPX 2
NASDAQ 5
USD 99.05-101.75
EUR/USD 1.05-1.08
YEN 112.03-116.01
Oil (WTI) 52.38-54.40
Gold 1184-1226
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
