Got #GrowthSlowing Right? We Did. (Back In December)

Takeaway: Our price signals were spot on regarding #GrowthSlowing.

So...U.S. Q4 GDP was revised sharply down this morning from 3.2% to 2.4% in the latest sign of slowing economic growth. For the record, we were virtually alone in our #GrowthSlowing macro call made back a couple weeks before Christmas.

December 12th to be precise.

Got #GrowthSlowing Right? We Did. (Back In December) - snails


Here's an excerpt:


Today, we received a great follow-up question from a very sharp client in the fixed income space: “What is the data you’re looking at to support your view that GDP growth will slow down?”


As with any inflection-based call on growth and/or inflation, we start with the market’s risk management signals – which tend to lead the reported data. The USD is decidedly broken from a quantitative perspective and long-term interest rates are making lower-highs vs. the YTD peak in both growth data and #GrowthAccelerating expectations.


Got #GrowthSlowing Right? We Did. (Back In December) - chubs


In short, this is how we have managed and communicated our non-consensus macro call over the last 3 months: 

  • #GrowthAccelerating was our view for most of 2013. The call was to be long pro-growth/consumption exposure.  
  • As we moved through Q4, we became increasingly cautious on the slope of growth….but, the price signal remained positive and we repeatedly highlighted that we knew we were “buying the bubble.”  
  • The price signal (10Y/VIX/$USD) started to break down from a quantitative perspective. So, we got decidedly less bullish on pro-growth leverage.
  • The fundamental data began to come in increasingly negative, confirming the price breakdowns and we got longer of slow-growth/yield chasing assets (bonds/gold/commodities, etc)  

Now here we are.

Join the Hedgeye Revolution. 

podcast | McCullough: Janet Yellen's Crazy (There I Said It)


Hedgeye CEO Keith McCullough goes no holds-barred on the Fed's serial dollar debauchery and how this "Burning Buck" policy is creating major risks and opportunities. 


KSS: Dot.Com Trends Rolling in the Wrong Direction

Takeaway: KSS '14 guidance is still too aggressive. $800mm in revenue is at risk for JCP, and eroding weakens a pillar of support.

Conclusion: We already stated our belief that KSS 2014 guidance is too aggressive – in fact, we don’t even think it will comp positive. While the crux of our argument rests in $800mm in revenue that we think is at risk to JCP, we found the company’s e-commerce trends to be troubling as well. E-commerce sales have protected KSS' comp for the past 9 quarters. With growth slowing, we seriously question the company’s 2014 comp guidance. If we estimate a (4%) brick and mortar comp with a 15% .com growth rate, we are looking at a (3%) blended comp in FY14 -- representing about half of what is at risk for the year.


While not outwardly clear given and store comps are blended into one number, it’s pretty troubling that brick and mortar comps have been negative for nine straight quarters. Growth in the channel has protected the company's reported comp over that time period to some degree, as outlined in the chart below.  


KSS: Dot.Com Trends Rolling in the Wrong Direction - KSS comp


KSS definitely recognized the importance of and have grown that side of the business at a 37% CAGR over the last 5 years into a $1.7bn business. Unfortunately, the growth rate of KSS’ is clearly slowing – both on a one and two-year basis. We still growth of 15% in '14 - but it won't continue to grow fast enough off of a much bigger base to offset weakness in KSS' 1100+ doors.


 KSS: Dot.Com Trends Rolling in the Wrong Direction - KSS com


Alec Richards


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

video | Keith's Macro Notebook 2/28: USD JAPAN EUROPE


Summary:  We’ve been vocal in our expectation for a deceleration in the slope of domestic growth over the last couple months and while this morning’s downward revision to 4Q13 wasn’t particularly surprising, it does offer some positive confirmation to that view. 


With the dollar breaking down, #InflationAccelerating, earnings growth still sub-trend, wealth effect (equities/housing) momentum decelerating and little incremental upside for consumption growth via a reduction in savings, we continue to think the growth decelerating trend extends through 1H14. 


GIP MODEL REFRESH:  The net impact to our GIP (Growth/Inflation/Policy) model from this morning’s data is another incremental shift in trajectory towards quadrant #3 – Slowing Growth and Rising Inflation


To the extent that the market continues to discount slowing growth and subsequent, incremental easing in policy – which ironically/unfortunately only perpetuates the move into Quad #3 – we think slow growth exposure (gold/bonds/commodities/utilities) continues to outperform pro-growth leverage. 





GDP DATA SUMMARY:  Below we highlight the notables in this mornings, 1st revision to the 4Q13 GDP estimate. 


Real GDP:  revised lower by 80bps to 2.4% from 3.2%.  Decelerating 170bps QoQ to 2.4%. 

Nominal GDP:  decelerating 200bps QoQ  from +6% in 3Q13 to +4% in 4Q14. 


Inflation:  Inflation estimates marked higher with the GDP Price index and Core PCE measures revised up 30bps and 20bps, respectively. 


C+I+G+E Revision:  Investment revised up small, everything else revised lower.

C: Consumption saw the largest downward revision from a contribution perspective at -.53% with QoQ growth revised from +3.3% to +2.6%.  Durable/NonDurables/Services were all revised lower but Durables (as the latest PCE data has reflected) saw the largest decline.


Whether the emergent deceleration in durables, and luxury and higher-end durables particularly, represents a pull-back in spending across the top income quintiles as equity and home value gains slow remains to be seen. We’ll get the updated PCE detail data on Monday.  


I:  Investment:  Private Nonresidential Investment, which was revised higher by +0.4 from a contribution perspective and +3.5% from a growth perspective, was one of the lone bright spots in the report. 


Inventories were revised lower and with inventory-to-sales ratios continuing to creep higher through year end, its unlikely inventories provide another outsized boost to reported growth in the coming quarters. 


G + NE:  Government was revised down modestly while the revision to the trade balance was the second biggest contributor to the headline decline with export growth revised -2.0% against a +.60% revision for imports. 


Real Final Sales growth (GDP less Inventory Change):  decelerating 20bps QoQ to 2.3%…revised lower by 50bps

Gross Domestic Purchases (GDP less exports, including imports):  Very Weak sequentially - Decelerating 250bps QoQ to +1.4%..revised lower by 40bps

Real Final Sales to Domestic Purchasers (GDP less exports less inventory change):  (Perhaps) The cleanest read on aggregate domestic demand was also weak, decelerating 100bps to +1.2%, revised lower by 20bps.








#GROWTHSLOWING:  4Q13 GDP - Eco Summary 022714 



Christian B. Drake


video | $CAT: What Next for Caterpillar?