“In almost all instances federal deficits are good for the economy. They are necessary.”
- Stephanie Kelton
Yep, that’s where this US Dollar Devaluation experiment is headed next – or at least we’re going to see both the Fed and their new Fiscal pals debate implementing it. It’s called printing & spending (or MMT), baby!
In her new book, The Deficit Myth: Modern Monetary Theory and The Birth of The People’s Economy, Kelton does the best job I’ve seen, so far, in explaining what she calls a “Copernican shift.”
She went too far in calling CTRL+Print+Spend something that’s actually the secret to the universe (like gravity and/or calculus). But, to debate something serious like this, I really needed to both consider and understand her perspective.
Back to the Global Macro Grind…
Welcome to a big time Macro Monday here @Hedgeye where everything is just huge and tremendously big, all of the time, and where we get to measure and map month-end markups across your Full Investing Cycle portfolios!
As usual, let’s start with the Global Currency market:
- US Dollar Index was devalued another -0.9% last week taking its 3-month decline to -6.1% = Bearish TREND
- EUR/USD appreciated another +0.9% last week to +7.5% in the last 3 months = Bullish TREND @Hedgeye
- Yen was up another +0.4% vs. USD last week and also remains Bullish TREND
- GBP/USD ramped another +2.0% last week and remains Bullish TREND @Hedgeye
- Norwegian Krone appreciated another +2.5% last week vs. USD and is +11.1% in the last 3 months alone
- Argentina’s Peso was DOWN -0.7% vs. USD and has crashed, -16.1% in the last 3 months
Q: in terms of how you get paid, would you prefer to be Norwegian or Argentine right now? Kelton actually uses Argentina as an example of what the USA should do with the government as the issuer of limitless fiat currency.
Moving along to the real-world Cost of Living inflations that both Americans and Argentines saw last week:
- CRB Commodities Index inflated another +2.3% last week to +18.2% in the last 3 months
- Oil (WTI) inflated another +1.5% last week to +23.4% in the last 3 months = Bullish TREND @Hedgeye
- Copper inflated another +2.9% last week to +23.6% in the last 3 months = Bullish TREND @Hedgeye
- Corn joined the Bullish @Hedgeye TREND party in Commodities, inflating +5.5% last week
- Natural Gas inflated another +3.3% last week to +29.1% in the last 3 months = Bullish TREND
- Cocoa inflated +8.9% last week to +11.8% in the last 3 months = Bullish TREND @Hedgeye
- Coffee inflated +5.5% last week to +22.4% in the last 3 months = Bullish TREND @Hedgeye
- Silver inflated another +3.4% last week to +53.1% in the last 3 months = Bullish TREND @Hedgeye too
Why am I using 3-months as my duration? That’s easy. That’s, right on the screws, the timing of #Quad4 Deflation (March to May of 2020) to Down Dollar #Quad3 Stagflation (i.e. our Long Commodities call) in June of 2020.
It’s also a longer (investable) timeline than a 1-week pop in the UST 10yr Yield was last week. The UST 2yr Yield (less frantic) was actually down -2 basis points last week to 0.13% and is down -4 basis points in the last 3 months.
For those of you asking for friends who want or need to be long #Quad2 with both Real Growth and Real Interest Rates Rising, please refer them to 2H of 2016 to Q3 of 2018 when the UST 2yr Yield went from 0.55% to 3.0%.
In US Equity terms, the best way to capitalize on another #Quad2 head-fake in the UST 10yr yield was to:
A) Buy Utilities (XLU) when they were on sale last week and
B) Short Financials (XLF) on their Counter @Hedgeye TREND bounce of +4.3% last week
Another core Asset Allocation to keep capitalizing on during fiscal & monetary policies to devalue USD remains our call to be long of Emerging Market Equities (EEM) and specific countries where we like their economic Quad (not Argentina):
A) Emerging Markets (MSCI Index) Equities were +2.7% last week and are +21.2% in the last 3 months
B) Chinese Stocks (Shanghai Comp) were up another +0.7% last week and are +19.6% in the last 3 months
Those are much better returns than being long US Financials (which are a long in #Quad2) which are only +7.1% in the last 3 months with most of that return coming on last week’s bear market bounce.
Another awful place to have had your Equity Allocations (relative to US Tech, Commodities, EM, etc.) was in Europe.
I know they don’t call London Europe anymore, but the FTSE was DOWN -0.6% last week to down -4.1% in the last 3 months. Swiss Stocks were down -0.5% last week to only +2.4% in the last 3 months.
But The People who don’t own stocks (but are paid in appreciating Euros and Francs) like the theory of working hard for something that appreciates in value and reduces their real cost of living. Maybe I’ll call that the KMT.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.59-0.75% (bearish)
SPX 3 (bullish)
NASDAQ 11,079-11,815 (bullish)
Tech (XLK) 114.75-124.90 (bullish)
Utilities (XLU) 58.41-60.48 (bullish)
Financials (XLF) 24.15-25.51 (bearish)
Shanghai Comp 3 (bullish)
VIX 21.24-27.41 (bearish)
USD 92.03-93.56 (bearish)
Oil (WTI) 42.14-43.71 (bullish)
Gold 1 (bullish)
Silver 25.74-28.54 (bullish)
Copper 2.91-3.06 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
