“MYTH #6: Entitlement programs like Social Security and Medicare are financially unsustainable.”
- Stephanie Kelton
Stephanie titled chapter 6 of The Deficit Myth “You’re Entitled.” And The Mother of All Doves, Janet Yellen, reiterated that yesterday in her presser with Biden. It’s a good thing she wasn’t a “politicized” head of the Federal Reserve!
For those of you who didn’t listen to what Janet had to say, like most things economic policy these days, it was a political narrative with no numbers. It was a narrative about her childhood and wanting to become an economist for those in need…
If you want to quibble with that, fine. But the US Dollar didn’t. It got smashed to fresh Cycle Lows on the explicit expectation that the US Government (via an empathetic Labor Economist + The Fed) is going to starting printing jobs in Devalued Dollars.
Back to the Global Macro Grind…
Make no mistake, given the ridiculously easy base effects for both US Growth and Inflation in the 1st Half of 2021, this is probably going to equate to the most epically bullish short-term #Quad2 US economy since WWII.
Then what? In the 2nd half of 2021 it’s either Deflation (#Quad4) or Stagflation (#Quad3)… or both!
Then you know what The Mother of All Money Printers is going to do? Moarrr of it! And, god willing, we’ll time that part of The Cycle right… but, for now, we have to continue to position for what the market has been telling us for the last month.
Oh, and by the way, it’s not just going to be #Quad2 locally – it’s going to be #Quad2 for at least the next 3-6 months globally! The Doctors of Global macro markets from the USA to South Korea were pricing that in for the last 48 hours:
A) Dr. KOSPI (South Korea) ramped right off-the-chart, up another +1.6% overnight to +16.4% in the last month!
B) Dr. Copper has ramped to the top-end of its Risk Range, inflating +14.7% in the last month in Devalued Dollars
If you had a coin-toss chance of living through a surgery, would you have either Doctor KOSPI or Copper cut you open… or a lawyer (PE Powell) or a Linear Labor Economist?
Don’t get me wrong, Janet seems like a very nice lady. But wow were her economic projections the latest of late-cycle-indicators! She’s best suited for the Treasury job where everyone is “entitled” to spend your hard earned tax dollars.
As for Private Equity’s guy, Powell, this is what he said on inflation yesterday: “we don’t see any of that yet.” Ha. Ok, bud. That’s funny (and sad all at once), as The Curve was steepening in his face:
A) UST 2yr Yield = 0.16% (because that’s the yield curve control he’s targeting on the short-end)
B) UST 10yr Yield ramped +8 basis points on the day to 0.92% = 10s/2s Spread of +76bps wide
Yeah, I know what his overly paid econs are going to say about that. ‘Well, we can’t see inflation in breakevens and real rates are negative’… blah blah blah.
All the while selfish Wall Street 2.0 bastards like me are Short Dollars and Long of Inflation running a $100,000 donation match on #GivingDay so that Hedgeye can help The Poor People who are getting poorer in real-cost of living terms.
The perverse reality continues to be that policies to CTRL+Print Inflation (then jobs) in Devalued Dollars is what continues to perpetuate 2 of the main political problems that Yellen was telling sad-depression-era stories about yesterday:
A) Low-to-no-income Americans are seeing epic INFLATION #accelerating in their largest cost of living line items
B) High-to-elite-income (you know, “rich” people like us) are front-running The People being long of Inflating Assets
Oh yeah, I parade around Connecticut as Mr. Big Time Elitist Yale Guy, eh? Sadly, I think you all get the joke.
The real bad joke is going to be on the middle-income people (don’t call my family part of a “class”, that’s a joke too – they are hard working human beings) in America who have their retirement assets allocated to both duration and deflation…
For at least the next 3-6 months, that is. Why?
A) What PE Powell thinks or says about inflation doesn’t matter to long-term interest rates – they’re going up
B) #Quad2 should ramp the UST 10yr Yield through @Hedgeye TREND of 0.99% and go wherever it wants, quickly
And no, it’s not about the “average” of things like “inflation targeting” or “yield curve control”… it’s about the PARTICULAR thing (expedited move higher in rates) from a particular time in The Cycle that the Fed almost always gets wrong.
For those of you who have “older” friends who still have their retirement accounts in Deflation/Duration Portfolios (Long-term Treasuries, IG Credit, Gold, Utilities, etc.), tell them I said to beware.
Who am I? I’m the guy who got you into all of those things as The Cycle peaked and hit #Quad4 in Q4 of 2018. I’m the guy who doesn’t worship at the altar of officialdom. I am the one who knocks!
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.81-0.95% (neutral)
UST 2yr Yield 0.15-0.19% (neutral)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 11,814-12,399 (bullish)
Energy (XLE) 34.53-40.85 (bullish)
Utilities (XLU) 62.07-64.80 (bearish)
Gold Miners (GDX) 33.01-36.80 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 258 (bullish)
VIX 19.49-24.90 (bearish)
USD 91.11-92.55 (bearish)
Oil (WTI) 41.94-46.97 (bullish)
Nat Gas 2.58-3.06 (bullish)
Gold 1 (bearish)
Copper 3.23-3.53 (bullish)
Bitcoin 16,717-20,355 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
