Takeaway: What’s really impressive about the inflation-slows-growth trade is how obvious it is at this point.

Editor’s note: This is an excerpt from CEO Keith McCullough’s Morning Newsletter today. Incidentally, this is the third time Hedgeye has made a big directional call that #InflationAccelerating will slow US consumption growth—the other two being in Q1 of 2008 and Q1 of 2011.

Bill Gross Is Way Late Getting Bullish on US Growth - bg

…Meanwhile everyone and their brother from the #OldWall in NYC to Washington and now California (PIMCO calling for “high 2% US Growth”) continue to confuse nominal growth (inflation) with real (inflation adjusted) growth.

On Wednesday the US will release GDP for the 1st quarter, and it will likely:

  1. Have a 1% handle on it (down hard from the sequential peak of +4.1% in Q413)
  2. See the Deflator (yes, you have to subtract it from nominal GDP) continue to rise from its sequential Q213 low

Bill Gross Is Way Late Getting Bullish on US Growth - Chart of the Day

In other words, on the 2 core factors that matter in our GIP (Growth, inflation, Policy) model:

  1. INFLATION = will be accelerating
  2. GROWTH = will be slowing

More commonly called stagflation, the common man’s wallet gets squeezed when this starts to happen. That’s not my opinion, that’s US economic history in the post Greenspan era (Bernanke and Yellen).

… What’s really impressive about the inflation-slows-growth trade is how obvious it is at this point. With the biotech and #SocialBubble stocks (FB, TWTR, YELP, etc.) getting pounded again on Friday (Nasdaq down -0.5% on the wk to -2.4% YTD), Utilities (XLU) closed the week up another +1.9%!

Sure, if you’re long Gold (up +0.5% last week to +8.1% YTD), Bonds, or any stock that looks like a bond, you’re having a great year. As you should be.

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