"All growth depends upon activity. There is no development physically or intellectually without effort, and effort means work."
- Calvin Coolidge
Real growth isn't easy. You need to grind and likely fail many times. But eventually you grow by embracing the challenging process.
We are very fortunate to have a large group of high achieving subscribers that understand that improvement and growth really only comes from hard work. There are no shortcuts.
According to many studies, getting out of your "comfort zone" is critical. It literally expands the dense network of connections between your brain cells, and as a result builds a "cognitive reserve."
A 1988 study published in the Annals of Neurology reported findings from post mortems that revealed that:
"some participants whose brains had extensive Alzheimer's disease pathology, had no or very few clinical manifestations of the disease."
The key difference it seemed was ultimately due to brain weight. In effect, those who had spent a life learning (and failing along the way) had literally built up more neural connections within their brain, which increased its mass. In turn, this helped offset the debilitating effects of Alzheimer's.
In some ways, the economy is not much different (especially during the time of Covid). It "fails" or slows, then "succeeds" and expands. The amplified challenges of COVID that simultaneously halt and open up economies have served to amplify the cycle.
As investors, if we are on the right side of this, the opportunities to make money and compound our clients' wealth is manifested. We can play the cycle both ways, reducing risk when the economy is going to slow and expanding risk when it accelerates.
Back to the Global Macro Grind…
One of the key challenges with accepting that the U.S. economy may be expanding and accelerating at the moment, is the amount of doom and gloom clickbait. Go peruse Zero Hedge (or as we like to say Zero Edge) for a few minutes and you will get my point.
Luckily in the world of data, the story is very different. Consider some of the key datapoints we've received this week:
- October's U.S. ISM Manufacturing PMI came in at 60.8, which was the 17th month of growth and solidly in expansion territory (despite massive supply chain issues!).
- The October U.S. Services PMI was an absolute blow out coming in at 66.7, which was a massive acceleration from September and an all-time high. Within this business activity and new orders were even higher at 69.8 and 69.7, respectively.
- The ADP jobs report (not our preferred measure of employment but a measure nonetheless) showed the economy added 571,000, which was an acceleration from September and the highest level since June.
- With more than 2/3s of the SP500 having reported, revenue is up near 19% Y/Y and earnings are up near 40% Y/Y.
- Michigan Consumer Confidence ticked up +0.3 points September to October to +71.7.
- Housing has also turned the corner from the summer with U.S. monthly mortgage applications accelerating to +7.5% from their August lows.
Am I guilty of viewing the world with rose-colored glasses? All I did was highlight the major U.S. economic data points over the last week which are: A) at high levels on an absolute basis and B) accelerating from Q3.
We've been emphasizing for months now that we expect economic acceleration in Q4 and this week the Atlanta Fed joined the party. Specifically, they upgraded their growth view to +8.2% in Q4 (seasonally adjusted SAAR), which would be their highest growth rate in 4 quarters. (Admittedly the same model was woefully too low for Q3, so take this with a grain of salt!)
Now, could supply chain issues and shortage of workers impede some growth? Of course. These concerns are real and worth reviewing. Just consider this commentary from ISM Manufacturing report:
"All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products."
But despite some constraints and challenges, the growth is real. And the reality remains, today's bottlenecks are tomorrow's real growth.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.51-1.71% (bullish)
UST 2yr Yield 0.42-0.51% (bullish)
SPX 4 (bullish)
RUT 2 (bullish)
NASDAQ 15,141-15,902 (bullish)
Tech (XLK) 157.86-165.07 (bullish)
Utilities (XLU) 65.93-67.64 (bearish)
Energy (XLE) 56.12-60.22 (bullish)
Financials (XLF) 39.72-41.02 (bullish)
VIX 14.08-17.30 (bearish)
USD 93.16-94.31 (bearish)
EUR/USD 1.153-1.168 (neutral)
Oil (WTI) 80.52-85.53 (bullish)
Nat Gas 5.11-6.38 (bullish)
Gold 1 (bearish)
Copper 4.30-4.61 (bullish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
