Now that the end of January is upon us I’m free to share a secret of financial punditry: the annual game of making detailed annual predictions is almost entirely worthless when it comes to making people money. Thousands of degenerate gamblers all over the world have no more than an educated guess as to the outcome of the Super Bowl six days from now and there only two teams playing. Making one-year market “calls” is useless on the surface of it.
Keith McCullough of Hedgeye Risk Management addresses this fundamental problem by shortening his timeframe and focusing on just two variables as the basis for his investments. “The two big things I need to get right or at least close to right are growth and inflation,” McCullough says in the attached video. From that perspective, McCullough views the market as sitting at a meaningful inflection point.
“On the growth side what we’re seeing is consumption growth slowing. So that’s a problem for some consumption-oriented stocks. Inflation, which was a great thing to be short last year, is starting to re-accelerate.”
Investors who’ve paid even a little bit of attention over the last few years well know consumption has been strong and inflation has simply not existed. It hasn’t said so in as many words, but what the Fed has been fighting since 2009 is actually deflation. After years of money-printing failed to trigger inflation, a significant and uncontrolled rise in prices for basic goods and commodities seems antiquated, at best.
McCullough is putting his money where his mouth is by getting long… wait for it… gold (GLD). After an 18-month beating, McCullough feels the yellow metal is about to make a substantial comeback.
On the consumer side McCullough is onboard with the idea that Americans are done going to the mall. That may be priced into the stocks of casual dining companies, but food inflation isn’t. An absence of foot traffic and rising input costs could be a devastating one-two punch for mass-market restaurant chains.
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