Long Treasury Inflation Protection (TIP)
Short US Dollar (UUP)
Assuming that the man saw this morning’s inflationary spike in the PRICES PAID component of the ISM survey (70.5 SEP vs. 61.5 AUG), we’re quite sure about what Ben Bernanke is doing right now – hoping you don’t see what markets do.
As we like to say at Hedgeye, hope is not an investment process.
Look at the two red arrows in this chart:
1. SEPTEMBER 2007
2. SEPTEMBER 2010
Heli-Ben didn’t recognize the inflection point in 2007, so we don’t expect him to publically consider the risk management questions now… but what if this debauchery of the US Dollar continues to put upward price pressure on everything priced in dollars?
Don’t forget that the question mark in this chart is the risk – and the risk remains NOT that inflation is born out of currency debasement, but that the mother-load of all inflations (the dotted red line) is actually in play.
We’re quite certain that consensus expects “deflation”, because that’s what the Fed needs to see. What you need isn’t always what you get. Ask 1970’s Fed Head, Arthur Burns, about that.