“As the currency issuer, he has the power to commit to spending money he doesn’t have, and he can’t go broke as a result.”
- Stephanie Kelton
By “he”, Stephanie is talking about Uncle Sam. As she goes on to explain, “he’s not financially constrained and that’s the reality that MMT exposes.” (The Deficit Myth, pg 69)
Now, to some of you real-world and real-markets folks, that might sound a little nutty. To others, it may sound like academic genius.
While she does use a Spider Man quote (“With great power there must also come – great responsibility.”)… to tone down the unconstrained spending idea…
I, for one, do not believe and/or trust that the government is going to be “responsible” when it comes to preserving and protecting the #1 driver of real-world and real-market inflation: The Purchasing Power of the US Dollar.
That, of course, is also The Purchasing Power of The American People.
Back to the Global Macro Grind…
I was on a handful of Institutional Client calls yesterday and Darius and I continued to get a lot of questions about MMT (Modern Monetary Theory) and its potential impact on both markets and the economy.
For now, I still have one clear investable conclusion: US Dollar Devaluation = #InflationAccelerating.
I’m assuming that most of you get that markets aren’t the economy at this point (especially if you look at the no-to-low-income people in the economy who can afford inflation in their cost of living accelerating from here the least).
For we, The Super Cool & Elite People, we only get richer if we Short Dollars and buy anything that’s inflating.
How uncool does that sound? Do you care? Why? I get asked these questions by affluent people who run the world’s largest asset management firms all the time.
It is their job, after all, to make money no matter what the government does.
Personally, I don’t struggle with this moral compass problem. I just short USD and buy Bitcoins, Commodities, China, EM, etc. God willing, I’ll share some of the wealth I generate with The People in our communities who need it the most.
I don’t struggle like The People are because I’m not a “shy” critic of Big Government Printing & Spending. I, unlike many “leaders”, call real-world inflation what it is. I’ll let their political idols try to solve for the Inequality Gaps it perpetuates.
Moving along, here are the Top 3 Things in my notebook this morning:
Another day of narratives vs. numbers it is – lots of places to make money in macro right now…
- USD (short) – simple narrative that is backed by numbers = US Dollar Devaluation by both the Fed & Fiscal Folks – after the textbook bounce off the low-end of its Risk Range earlier this week, USD resumes its decline, down -0.2% and -0.5% vs. Euros and Pounds, respectively. Bitcoin loves that, signaling higher-highs, as USD signals lower-cycle-lows
- COPPER (long) – inflates +0.5% with Dollar Down this morning and remains one of the obvious ways to be long of A) #InflationAccelerating (since June) and B) China’s economy accelerating (#Quad1); there are plenty of under-owned stocks like FCX (own it in my PA) that are taking share from Mega Cap Bubbles; we still like CAT too
- #NazVol (VXN) – closed below @Hedgeye TREND Signal line of 31.13 for the 2nd day in a row – on the 3rd day, what will it be? Don’t confuse Old Wall Media’s narratives about “growth vs. value” with what economic Quads Tech does well in (i.e. any Quad but #Quad4!), so I’d be long Tech and QQQ on volatility confirming a breakdown
If you’d like to receive those 3 Things every morning by 6AM ET, I send them to our Premium Subscribers. Almost 100% of the time, the subject matter of my Early Look note keys off the 3 Things (hence my MMT vs. USD note today).
If I’m right and the US Dollar is devalued to lower-cycle-lows, that, sadly, will be the beginning for the end of people in Ivory Towers debating whether or not “we have real inflation.”
If Darius, Dr. Drake, and I are wrong, it’s going to be to the upside on headline (government reported) US inflation come Q2 of 2021. Unlike government people, we are wrong on some economic nowcast and/or market level, every day.
That’s why we don’t write books about how to “think about inflation”… or MMT, or whatever. We’re too busy bean counting what growth and inflation are actually doing, in real-world and real-market Clock Time.
That’s right, depending on what the Fed & Fiscal Folks get away with doing to The Purchasing Power of The People, the clock is clearly ticking on an epic cyclical breakout in US inflation by Q2 of 2021.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.75-0.99% (neutral)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 10,964-12,056 (bullish)
Tech (XLK) 111.12-125.62 (bullish)
Energy (XLE) 30.74-35.34 (bullish)
VIX 22.84-37.65 (bearish)
USD 91.82-93.31(bearish)
Oil (WTI) 38.31-42.87 (bullish)
Nat Gas 2.73-3.25 (bullish)
Gold 1 (neutral)
Copper 3.06-3.20 (bullish)
GOOGL 1 (bullish)
NFLX 461-499 (bearish)
Bitcoin 14,829-16,597 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
