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“If I had learned education, I would not have had time to learn anything else.”
If you want to be humbled in this good life, study economic #history. The more I read, the less I realize I know. Given that our economy is centrally planned by people who have no financial incentive to un-learn failed policies and re-learn from the past, that often scares me.
Then I’ll go back to a book, read some more, and find that light of American progress. While it may be dimming, it’s always there. We don’t put two feet on the floor for our families and firms every morning thinking about what government can do for us.
I think about what we can build to change a failed status quo. That’s not easy. I don’t want it to be. My education provides me with the context of its frailty. If I wasn’t paid to read and write to you every day, I wouldn’t be so optimistic that there’s a much better way.
Back to the Global Macro Grind…
New ideas scare a certain type of people; especially people whose failed ideas you are challenging. “So”, let’s do that this morning and challenge 3 of the most widely held academic economic dogmas of America’s 21st century:
1. Money Printing (Dollar Devaluation and Debt Monetization)
2. The American Dream (everyone has to own one, right? #Housing)
3. Yield Chasing (you have to invest in bubbles, or you don’t get paid)
Fair Enough. You can go back to school and write a Ph.D. disproving each of these and I’ll see you in the 22nd century. In the meantime, you’ll have to use A) common sense and B) real-time market data:
1. Fed’s Balance Sheet (Money Printing) update – up +$929 beeelion dollars year-over-year to $4.3 TRILLION and now the NY Fed’s Bill Dudley (formerly of The Goldman Sachs, who helped bail out the banks) is saying $1.7 TRILLION of that (MBS –Mortgage Backed Securities) never has to be sold, unwound, etc. I’m still digging through the Constitution to find who made him god.
2. US #HousingSlowdown (The American Dream) update – post whatever the “weather bounce” was supposed to give us (oh, and rates falling, fast), both supply and demand numbers released for April Housing were not good yesterday.
A) Housing Demand – existing home sales released by the NAR (National Assoc. of Realtors) were down -6.8% year-over-year in April (vs. -7.5% y/y in March) and the Northeast (which was really supposed to have the weather bounce) saw existing home sales down -6.3% in April vs. -4.8% in March.
B) Housing Supply - #drumroll… saw its biggest sequential (month-over-month) ramp, ever. Yes, by our proprietary calculations, ever is a very long time. In percentage terms, existing homes inventory ramped +16.8% in April versus March. I’ll circle back on this colossal failure of the government trying to reflate a bubble that already blew up once at the end of this note.
3. Fixed Income vs. Equity Fund Flows (#YieldChasing) update – since the un-elected and unprecedented ideology that “rates on savings have to be 0% forever” has many unintended consequences, let’s just focus on the most obvious one – forcing investors to chase a yield (a rate of return to live on) greater than the risk free rate (of 0%).
A) Fixed Income Fund flows accelerated to +$3.9B in weekly INFLOW (versus the YTD weekly avg of $2.1B)
B) Equity Fund flows saw their 3rd wk of OUTFLOW in 2014 at -$1.0B (versus the YTD weekly avg INFLOW of +$3.1B)
“So”, in hash tag-less English that an “educated” person can’t obfuscate with big words:
1. Money Printing – the Policy To Inflate (but not calling it that) causes US consumption growth (71% of the economy) to slow
2. Yield Chasing – i.e. buying bonds and anything that looks like a bond (selling growth stocks) takes hold as the economy slows
3. The American Dream – yeah, baby!
Oh, yeah, baby!
Damn those free-market American Capitalists (Vanderbilt, Carnegie, Rockefeller, etc.) of the 19th century and/or anything that looks like them – and go lever yourself up and buy an unproductive asset (a house). Then sit on it, and rotate, until the Fed bubbles its price up.
Janet Yellen is having a bird right now because The American Dream that she and her boy Barney (Frank) drew up just isn’t working. As interest rates fall and the redo of the housing bubble takes hold… newsflash: first time buyers can’t afford to buy a house.
First time buyers of US homes represented 29% of demand in April. That’s down from 30% in March and testing 10 year lows. Rents, meanwhile, are hitting all-time highs in America. I know – that’s not inflationary. It’s not the American progress they planned for either.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.45-2.61%
WTI Oil 102.45-104.36
Best of luck out there today and enjoy your long weekend,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – May 23, 2014
As we look at today's setup for the S&P 500, the range is 32 points or 1.45% downside to 1865 and 0.24% upside to 1897.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
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Takeaway: 72% said HERE TO STAY; 28% said FAD.
Hedgeye analyst Matt Hedrick covers consumer staples and one area of focus is electronic cigarettes within the tobacco industry. Hedrick added Lorillard (LO) as a high-conviction long to Investing Ideas on 3/7/14 (it’s up 20% since then). Included in his thesis is the longer-term earnings power from blu, its e-cigarette brand.
Today’s poll question was: Are electronic cigarettes a fad or here to stay?
At the time of this post, 72% said electronic cigarettes are HERE TO STAY; 28% said it’s a FAD.
Of those who voted that e-cigarettes are HERE TO STAY, they explained:
Conversely, one voter who believes it’s a FAD said, “Stick with the patch, I did. Most doctors are adamantly against them and are claiming that there are unhealthy elements within the vapor. Look for the FDA to pooh pooh the idea.”
Another agreed: “Someone will come up with a more natural version of an alternative cigarette (different than American Spirits) and potentially wipe out the e-cig category.”
Takeaway: Adidas Chief Executive Herbert Hainer makes a pretty damning admission.
• "German sportswear company Adidas has given a more precise sales growth target for 2014, amounting to a rise of up to 8 percent, as it gets a lift from the soccer World Cup that starts in Brazil next month."
• "'This year we will add 1-1.2 billion euros ($1.4-1.6 billion) to operational revenue, with the World Cup playing an important role,' Chief Executive Herbert Hainer told journalists at a briefing in Munich in remarks released for publication on Thursday."
• "That increase represents a rise of 7-8 percent from the 14.492 billion euros of sales Adidas recorded in 2013. Previously, Adidas had guided for a 'high single-digit' increase in currency-neutral sales in 2014."
• "'Football is the DNA of our company. We want to clearly show that we are number one in football,' Hainer said, adding Adidas expected to sell significantly more balls than at the last World Cup in South Africa four years ago and about as many shirts."
• "Hainer acknowledged, however, that Adidas faced a 'head-to-head' race with Nike in the business for football boots, including in Germany, predicting Adidas would sell 2 million pairs of special boots designed for the World Cup."
Pretty damning admission by Hainer. Adidas is 'head-to-head' with Nike in the football boots arms race? We would have guessed as much, but Nike is just starting to gain traction in the soccer market. Add Under Armour to the mix and it’s a pretty bleak outlook for Adidas. When soccer balls and t-shirts are the key pillar of growth for a footwear company, we get concerned.
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Editor's Note: This is a complimentary research excerpt from Hedgeye Retail sector head Brian McGough. Follow Brian on Twitter @HedgeyeRetail.
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