Risk Managing Inflation Expectations: TIP Trade Update

Conclusion: As we have seen repeatedly throughout history, stability in the U.S. Dollar is acting as a governor on the slope of inflation expectations. As such, we have sold our long position in TIPS.

 

Virtual Portfolio Positioning: Sold our long position in the iShares Barclays TIPS Bond Fund (TIP).

 

Yesterday afternoon, Keith sold our long position in Treasury Inflation Protected Securities on the strength of a TRADE line breakdown amid signs of stability in the U.S. Dollar Index, our leading indicator for the slope of intermediate-term inflationary pressures. Conversely, a breakdown of the DXY through its TREND line would, once again, get us increasingly hawkish on the intermediate-term slopes of domestic and global inflation readings.

 

Risk Managing Inflation Expectations: TIP Trade Update - 1

 

Risk Managing Inflation Expectations: TIP Trade Update - 2

 

Fundamentally, USD stability acts as a governor on global food, energy, and raw materials prices, and, as a result, a governor on global producer and consumer prices due to the marginal decrease in supply-chain pressures. Particularly in the U.S., given that there is “slack in the labor markets” and that “capacity utilization remains subdued” (to borrow the Fed’s own lingo), the only thing really moving the dial on domestic PPI and CPI readings  is the purchasing power of the U.S. dollar and its impact on price-setting across global commodity markets.

 

Further, increased clarity in the Republican primary has also been interpreted as dollar-bullish, because it inches consensus one step closer to the generational debate about debts, deficits and monetary policy that we expect to come alive in the months leading up to the general election.

 

All told, keep your eyes on the aforementioned quantitative levels, as the slope of inflation expectations continues to be the driving force of asset prices globally – a relationship we attribute to investors favoring the reflationary effects of easy monetary policy in the absence of true underlying economic growth momentum and improving fundamentals.

 

Darius Dale

Senior Analyst

 

Risk Managing Inflation Expectations: TIP Trade Update - 3


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more