“So why not tell Congress to just keep spending until all our problems are solved?”
- Stephanie Kelton
Evidently plenty of people who run big Institutional money were hoping for a mega stimulus package. Friendly reminder: hope is not a risk management process.
As Kelton goes on to explain in The Deficit Myth, “for evidence of overspending, look to inflation.” (pg 40)
And, while she rightly calls out inflation as the “real danger” to spending TRILLIONS of US Dollars at a clip in order to prop up the stock market, she doesn’t do a very good job explaining the plumbing on US Dollar Devaluation Risk.
Back to the Global Macro Grind…
For those of you who have friends who are still being rotated (long the Financials since June), the Real Reflation Trade (Down Dollar, Up Commodities) started in May-June and ramped to it’s #Quad3 highs at the end of August.
Since the end of August:
A) The US Dollar has made a series of higher-lows
B) Commodities (led by Oil) have made a series of lower-highs …
In fractal geometry, this is called a Similar Set. That’s when two sets (A and B) are completely ordered and are similar if a bijection exists.
Yeah, most of the guys staring at single-factor Moving Monkeys and tourist #MegaStim tweets are all over that.
Putting the math into simple words, it’s really not that hard to understand:
A) The government prints money and spends it, TRILLIONS of US Dollars at a time
B) The fiat currency they printed (USD) is devalued, and real world prices inflate in that currency
In Argentina, Zimbabwe, etc. that Real Cost of Living Inflation didn’t end well for The People. So, there are still some conservatives in the US Senate that are probably thinking about that and not willing to spend another $2-3 TRILLION.
But, Wall Street is begging for it. And, MMT fans have to have it.
Not all MMT (Modern Monetary Theorists) people think it should be another $2-3T printed to buy Junk Bonds (JNK) though. Kelton would probably go for paying poor people a living wage and buying them some food, instead, for example.
What do you think the USA should do?
Does your answer really matter? Obviously the Fed is an unelected body of people who are quite willing to hit the CTRL+Print button any time their buddies on Wall Street have a drawdown of other people’s money and/or their compensation…
But Congress is elected. And it is Congress that needs to agree on doing what the Fed can’t = SPEND, SPEND, SPEND!
In the meantime, especially if you are risk managing either your hard earned capital and/or that of The People, you absolutely have to understand the US Dollar Correlation Risk embedded in current asset prices.
THEY ARE PRICED IN DOLLARS!
Oh yeah, going all Trumpian CAPS on you there. If you didn’t know what happens when there’s no #MegaStim soup for you (yesterday’s intraday macro market move) now you know:
A) US Dollar immediately spiked off another higher-low
B) Commodities, Gold, Stocks, etc. went straight down
Even the beloved Bitcoin (I sold the remainder of what I owned personally) went down on that. Shhh, don’t tell the perma technologist bulls, but it’s a Commodity that went up, a lot, on US Government Spending and Dollar Devaluation too.
Ok, so now what?
A) Pump is telling Nancy give the poor people who have to pay for the JUN-AUG inflation BIG CHECKS
B) Nancy is telling Pump he’s on drugs
So, buy Airline Stocks (JETS)? Ha. No thanks. What the market told you to do on no #MegaStim is what you’d do during #Quad4 in Q4 (current probability around 54.3% for that economic outcome) anyway:
A) Trade your Commodities and Gold in for some cold hard US denominated Cash
B) Buy US Treasuries and …
C) Buy Utilities (XLU)
I know, I know. All of the Hoodies & Hedgies came into yesterday’s no-volume highs long Utes (XLU) and short FAAMG, eh?
Uh, no. On no-stim-foh-you, Communications (XLC) had a -3% intraday drop as total US equity volume #accelerated +30% day-over-day on rising US equity market volatility. That risk happens, quickly, if its #Quad4 too.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.60-0.79% (bearish)
SPX 3 (bearish)
RUT 1 (bearish)
NASDAQ 10,683-11,478 (bearish)
Utilities (XLU) 56.95-62.40 (bullish)
Financials (XLF) 22.93-24.88 (bearish)
VIX 25.75-30.50 (bullish)
USD 93.36-94.73 (neutral)
EUR/USD 1.16-1.18 (neutral)
USD/YEN 105.12-106.20 (neutral)
GBP/USD 1.27-1.30 (neutral)
Oil (WTI) 37.18-41.70 (bearish)
Gold 1 (bullish)
Silver 22.64-24.94 (bearish)
Copper 2.88-3.05 (neutral)
MSFT 198-213 (bearish)
GOOGL 1 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer