“People worry about inflation because it can eat away at their real standard of living.”
- Stephanie Kelton 

While Kelton absolutely nails that point about real life cost of living, she fails to explain how to think about inflation in real-time predictive tracking algo terms. Without taking the government’s word for it, inflation is absolutely measurable in ROC (rate of change terms).

“So what causes prices to rise and what can we do to prevent inflation from eroding our standard of living over time?”

-The Deficit Myth, pg 45

A: Devaluing the US Dollar. Period. Instead of stating that plainly at the outset, Kelton went with the recent Global Deflation TREND that was driven by a #StrongDollar and slowing economy. That’s what happened when the Global Economy was in #Quad4.

#Quad3 Inflation Remains - 10.19.2020 feed me cartoon

Back to the Global Macro Grind…

If you don’t like it when your stocks go down (on #Quad4 Dollar Up moves like we saw last week and in SEP) and there’s no MMT style stimulus foh-you, I guess that’s too bad. If you’re not a central-market-planning fan, the best you can hope for are Quads 1, 2, or 3.

Good news (for rich people who are long of assets) in America this AM: the probability for #Quad4 in Q4 just fell to 48.2%.

Commensurately, the probability for #Quad3 in Q4 just went to 49.3%. On the margin (where everything in macro markets matters), that’s incrementally bearish for the US Dollar and bullish for inflation to continue to #accelerate on a TRENDING basis from The Cycle’s lows.

If you’re measuring and mapping inflation expectations in real-time, that’s why you’re seeing:

  1. USD Index breaking bad this morning back to Bearish @Hedgeye TRADE (93.58 resistance was support)
  2. CRB Commodities Index (19 commodities) back to Bullish on both our TRADE and TREND durations
  3. Dr. Copper +0.5% reiterating Bullish TRADE ($3.01 support) and TREND
  4. Corn and Wheat up another +0.4-0.9%, respectively, inflating to new Inflation Accelerating Cycle highs
  5. Natural Gas inflating another +2% this morning, reiterating its Bullish @Hedgeye TRADE and TREND

That’s also why, if you don’t mind me being flexible and objective in my macro market positioning, I’m long of #Quad3 instead of #Quad4 (deflation) this morning. The biggest risk to this position is that Pelosi doesn’t get her big CTRL + Print MMT spending deal ‘till when?

It’s also why alternatives to the US Dollar continue to get promoted by Bitcoin HODLers and Gold Bugs alike (I’m currently long of both). The TRENDING @Hedgeye inverse correlation between the US Dollar and Bitcoin is -0.87 this morning, for example.

I’ll be having a Real Conversation with Founder and CEO of MicroStrategy, Michael Saylor, on why he’s long Bitcoin LIVE @HedgeyeTV at 10:30AM EDT if you’d like to hear more about that. Click HERE to watch.

How committed are establishment econs to devaluing the US Dollar? A: Very.

How truthful and transparent are they about the transmission mechanism to “create the inflation we all need”? A: Not at all. This is what gets the Bitcoin Hornets all fired up and trolling perma US Dollar bulls about “staying poor.”

In real purchasing power terms, you will be poorer if you don’t buy inflation hedges.

As you can see in the Chart of The Day, the context of this particular moment in US Dollar Cycle Time matters more than just about anything else. Much like it was in 1, the US Dollar is coming off an epic (high) level. The scope for downside in 2021 is epic too.

Why? Well, that’s easy. A: #Quad2

While I’ve been accurately and appropriately risk managing the rising probability of #Quad4 in Q4 since early September, by the time we get to November/December, I’m going to be risk managing if/when #Quad3 US Stagflation (with down year-over-year GDP) becomes #Quad2 GROWTH and INFLATION #accelerating, at the same time, by FEB-MAR of 2021. #Quad2 in Q2 of 2021 is almost a layup view.

Re-read that paragraph. It’s important to pay attention to the timing of it all. That’s not easy. But it is my job.

In an epically politicized and polarized world of media, it’s also my responsibility to hold these Big Government People to real-time account. Never has the government told poor people that they have an inflation problem in their cost of living that the government created.

Never is a long time.

And if #Quad4 Deflation probability starts to rise again, it won’t take me much time to go back to that positioning!

Stay nimble, my friends.

Immediate-term @Hedgeye Risk Range with TREND signal in brackets:

UST 10yr Yield 0.69-0.82% (bearish)
SPX 3 (neutral)
Tech (XLK) 115.91-124.90 (bullish)
REITS (XLRE) 35.26-37.43 (bullish)
Utilities (XLU) 61.32-64.49 (bullish)
Shanghai Comp 3 (bullish)
VIX 24.11-30.22 (neutral)
USD 92.89-94.15 (neutral)
Oil (WTI) 39.23-41.90 (bearish)
Nat Gas 2.52-2.96 (bullish)
Gold 1 (bullish)
Copper 2.99-3.12 (bullish)
Bitcoin 10,651-11,894 (bullish)

Best of luck out there today,


Keith R. McCullough
Chief Executive Officer

#Quad3 Inflation Remains - 88