“Would be surprised if there was a sustained inflation rate that hits the FED's target rate of 2% within the next year or two…”
- Eric Rosengren
For those of you who don’t know who he is, Eric Rosengren is a 63 year old linear economist who is the head of the Federal Reserve Bank of Boston. I don’t think he’s been to Texas this week. I just got back.
With our Street high US Inflation Nowcast running > +3%, never mind +2%, I guess he will be surprised by the time #Quad2 rolls through Q2 of 2021. Big stuff, like the US Bond Market, will not be, however.
Evidently pension fund Asset Allocators who are still long latent Late Cycle Deflation expectations (loaded with Long-term Treasuries, Duration Sensitive Fixed Income, Gold, Utes, etc.) are being surprised, weekly, at this point in The Cycle too.
Back to the Global Macro Grind…
Need a USA #Quad2 update?
A) Look at Commodities (and Oil in particular) making new Cycle Highs yesterday with the CRB Index at 188
B) Look at US Retail Sales #accelerating, big time, from +2.5% y/y in DEC to +7.4% year-over-year in JAN
As you can see in today’s Chart of The Day, that’s an epic #acceleration in one of the biggest US Consumption contributors to #Quad2. Just wait until The Cycle cycles against the MAR and APR COVID comps!
Oh, yes Mr. Linear Econ, The Cycle cycles – and it’s going to go all-non-linear on your Fed Talking Points.
Here’s how one of the greatest team players in Hedgeye history, Dr. (Christian) Drake, depicted the State of US Retail Sales in an Institutional Subscriber research note:
|
“You knew it was coming. The restlessness was thick, the angst surrounding suppressed domestic consumerism palpable. An intensifying imbalance between consumption capacity and realized spending percolating under a thin veneer of distortive externalities. The Quad 2 juggernaut can’t be stopped, you can only hope to contain it.” |
Loved reading that.
But did our competition (who is still waxing “fundamentally” about Secular Deflation) actually know these ROC (Rate of Change) Accelerations were coming? Nope. They just yap with new narratives AFTER the numbers are reported.
I like to yap. But I start with numbers, not Old Wall Street narratives. What was I yapping about in my Top 3 Things to Institutional Subscribers this morning?
- USD – fails @Hedgeye TRADE and TREND signal levels, again, and remains Bearish @Hedgeye TREND (since JUN) perpetuating an Inflation Cycle that continues to confuse anyone who isn’t paying attention to the bond market with the UST 10yr Yield up another +2bps to 1.29% (Short USD and TLT)
- COPPER – loving this morning’s Down Dollar move with another +2.2% inflation to fresh new Cycle Highs for #FullCycle Investors long names like Freeport (FCX) – as a reminder our US Nowcast is for headline Inflation to accelerate through the +3% level in Q2 of 2021
- GOLD – disaster zone in Deflation/Duration portfolios, again, yesterday with Gold pricing crashing to a > -15% drawdown from its #Quad3 Cycle Peak (AUG of 2020); bounces +0.5% from the low-end of my $1 Risk Range (at the top-end of the Range, I’ll short more)
I’ll be reiterating the Long Inflation/Short Deflation view from now until at least April/May. Don’t be surprised.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.19-1.32% (bullish)
SPX 3 (bullish)
RUT 2 (bullish)
NASDAQ 13,766-14,195 (bullish)
Tech (XLK) 134.01-139.08 (bullish)
Energy (XLE) 41.70-47.17 (bullish)
Utilities (XLU) 61.46-62.99 (bearish)
Gold Miners (GDX) 33.01-35.02 (bearish)
Shanghai Comp 3 (bullish)
VIX 19.18-24.30 (bearish)
USD 89.90-91.31 (bearish)
Oil (WTI) 56.68-61.94 (bullish)
Gold 1 (bearish)
Copper 3.66-3.93 (bullish)
Bitcoin 45,101-54,433 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
