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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 9, 2014


As we look at today's setup for the S&P 500, the range is 31 points or 1.25% downside to 1925 and 0.34% upside to 1956.                           

                                                                                                    

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.21 from 2.19
  • VIX closed at 10.73 1 day percent change of -8.13%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • No major reports scheduled
  • 9:10am: Fed’s Bullard speaks in Florida
  • 12:45pm: Fed’s Tarullo speaks in Washington
  • 1:30pm: Fed’s Rosengren speaks in Guatemala

 

GOVERNMENT:

    • Obama said to prepare action to ease student debt payments
    • Kerry calls threats of freed Taliban to resume war ’baloney’
    • House Veterans’ Affairs Cmte hearing on “Data Manipulation and Access to VA Healthcare: Testimony from GAO, IG and VA
    • 9:30am/10am: Supreme Court to issue orders, opinions
    • 11am: NABE holds conf call to discuss economic outlook
    • 9pm: Former Sec. of State Hillary Clinton to be interviewed on ABC News on new book ‘‘Hard Choices”
    • U.S. ELECTION WRAP: Mississippi Politics; Calif. 31st CD Race
    • Washington Week Ahead

 

WHAT TO WATCH:

  • Tyson said to win bid for Hillshire, besting Pilgrim’s Pride
  • Treasury discloses limits on bank-data sharing w/spy agencies
  • Credit Suisse may sell more of fixed-income venture
  • Netflix holders vote whether to split chairman/CEO role
  • China said to suspend import permits for Sygenta’s MIR 162
  • McDonald’s May comp-sales growth seen led by Asia, Europe
  • SABMiller seeks to ramp up shr of U.S. premium-beer mkt: FT
  • Buffett auction gets $2.17m winning bid from Singaporean
  • Kraft joins J.M. Smucker in raising coffee prices
  • Japan growth picks up more than estimated on investment
  • Macau yr gaming growth est. cut to 12% at Deutsche Bank

 

EARNINGS:

    • Casey’s General Stores (CASY) 4pm, $0.53
    • Comverse (CNSI) 6:50am, $(0.06)
    • Ferrellgas Partners (FGP) 7am, $0.59
    • Hertz (HTZ) 6:02am, $0.09
    • Pep Boys-Manny Moe & Jack (PBY) 4:30pm, $0.06
    • Triangle Petroleum (TPLM) 5:48pm, $0.12

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Trades Near Three-Day High on U.S. Employment; Brent Rises
  • Cotton Acres Expanding in India as Prices Climb to Two-Year High
  • Copper Bets Cut Most in Month as Metal Leads Losers: Commodities
  • China Said to Suspend Import Permits for U.S. Corn Product
  • Copper Declines as Lower Chinese Imports Stoke Demand Concern
  • Corn Drops as U.S. Crop Conditions Boost Production Prospects
  • Gold Near One-Week High as Palladium Reaches Highest Since 2011
  • Sugar Rises Amid Signs Physical Demand May Recover; Coffee Falls
  • Steel Rebar Falls as China Imports Drop Signals Weakening Demand
  • Hedge Funds Retreat From Record Crude Wagers on Supplies: Energy
  • Vale Too Rich for Barclays on Iron’s 30% Plunge: Brazil Credit
  • World Needs Saudi Arabia to Supply Record Oil as OPEC Meets
  • U.S. Mint Gold Coin Sales Fall 49% on Fed Tapering, Flat Prices
  • Mitsubishi UFJ Trust’s Gold ETF Grows to Record as Prices Drop

 

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


The Best of This Week From Hedgeye

Takeaway: Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.

HEDGEYETV

Liz Ann Sonders, chief investment strategist at Charles Schwab, sits down with Hedgeye CEO Keith McCullough to talk markets, the economy and much more in this latest edition of HedgeyeTV's "Real Conversations."

 

Hedgeye CEO Keith McCullough gives his outlook for the broader market and Russell 2000 on Fox Business' Opening Bell last Monday.

 

Here's the question-and-answer portion from our daily institutional Morning Call hosted by Hedgeye CEO Keith McCullough and Macro analyst Darius Dale from Tuesday.

CARTOONS

Click here to subscribe to Cartoon of the Day. 

 

The Best of This Week From Hedgeye - Blinders cartoon June 2014 normal

 

The Best of This Week From Hedgeye - shark cartoon June 2014 normal 

The Best of This Week From Hedgeye - Job growth 6.5.2014

CHART

The Best of This Week From Hedgeye - SPX normal 

POLL

As bond yields crash year-to-date and the Russell delivers negative returns, the world’s most consensus short position (SPX Index + E-mini) hit another new high on no volume on Monday. Click here to view the poll and results.

 The Best of This Week From Hedgeye - poll

HEDGEYE.COM

Fourth Week of Consecutive Decline in Mortgage Demand

The Best of This Week From Hedgeye - 18x74ymmndzzhjpg normal

Despite falling rates and solid labor market indicators, the demand to buy homes keeps dropping. Click here to continue reading.

 

Jobless Claims: Back at Best Levels Year-To-Date

 The Best of This Week From Hedgeye - jobs1 normal

A second week of accelerating improvement brings rolling non-seasonally adjusted claims back to best levels YTD. Click here to read more.

 

Hedgeye Retail: Wary Of Skechers' (Mis)Direction | $SKX

The Best of This Week From Hedgeye - chart1 6 2 large normal

We've never seen a brand go in so many directions at once. Click here for more.

LEARN MORE ABOUT BECOMING A HEDGEYE SUBSCRIBER.


INVESTING IDEAS NEWSLETTER

Takeaway: Current Investing Ideas: GLD, HCA, HOLX, LM, LO, OC, RH, and TIP

Below are Hedgeye analysts' latest updates on our EIGHT current high-conviction investing ideas and CEO Keith McCullough's updated levels for each.

 

*Please note we added TIP and removed ZQK from Investing Ideas this week.

 

We also feature three institutional research notes from earlier this week which offer valuable insight into the markets and economy.

 

INVESTING IDEAS NEWSLETTER - 1

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

HEDGEYE CARTOON OF THE WEEK

INVESTING IDEAS NEWSLETTER - Job growth 6.5.2014 

IDEAS UPDATES

GLD –  On Wednesday afternoon we reiterated our call to buy Gold ahead of the ECB meeting which was anticlimactic relative to expectations.

 

The ECB made the following rate cuts:

  • Benchmark Rate Cut from 0.25% to 0.15% (0.10% estimated)
  • Marginal Lending Facility from 0.75% to 0.40% (0.60% estimated)
  • Deposit Facility from 0.0% to -0.10% (-0.10% estimated)

After the announcement at 7:45 a.m., the Euro (ETF: FXE) opened down -0.35% from its Wednesday close and moved higher throughout the day to close +0.43% on the session. Gold (ETF: GLD) rallied on the announcement and closed +0.75% on the day. Gold is up +0.55% week-over-week, and we remain long into the Fed policy meeting on the 18th.

 

Because we believe Gold is a hedge against the expectation for forward-looking dollar devaluation, Gold’s strong correlation to the Euro as soon as Mario Draghi mentioned a potential asset purchase program back in February is not the least bit surprising. 

 

INVESTING IDEAS NEWSLETTER - gold


HCA – We’ve been attempting to measure deliveries with a monthly survey of OB/GYNs. Our May/June survey shows a modest improvement, but deliveries reported by the surveyed OB/GYNs continue to decline year over year. The results have been consistently showing a decline over the last several months despite comments from hospital companies, including HCA Holdings, and data from the US Census showing that births accelerated in 4Q13 with growth continuing into 1Q14. 

 

The US Census will update their data for May by the fourth week of June, giving us what would appear to be the most accurate indication of maternity trends.  We continue to track these data closely as maternity is the  largest contributor to inpatient admissions.

 

INVESTING IDEAS NEWSLETTER - Deliveries completed May


HOLX ­­– The monthly OB/GYN survey of Pap utilization shows we are on track with our estimate of an annual rate of decline of -10% for Hologic’s ThinPrep franchise.  While some physicians are seeing volume decline at 20% or more in some cases, there are many others who are already compliant with the 2012 Cervical Cancer Screening Guidelines, or at the other extreme will never reach 100% compliance of testing every 3 years. 

 

Patient volume weakened somewhat sequentially, particularly among commercially insured patients. Medicaid volume remained positive, likely supported by the ACA.  Regionally, the Midwest was particularly weak relative to other regions.

 

INVESTING IDEAS NEWSLETTER - PAP JUN14

 

LM – Shares of leading bond fund manager Legg Mason had another good week rising 4% as the hunt for yield among stocks and bonds continued. With the European Central Banks cutting rates again, the outlook for most global paper brightened as when an important developed market lowers prevailing interest rates, existing fixed income can appreciate.

 

Legg Mason also sold a small sub-scale asset management division to Stifel & Co. during the course of the most recent 5-day period which relays that LM management is focused on delivering strong shareholder returns by selling non-core assets and executing share repurchases and dividend hikes. The year-to-date outperformance of an investment in Legg Mason is undeniable with LM shares now up over 16% in 2014, some 11 points higher than the next best performing asset management stock.

 

We still like the long position until Street consensus recognizes this out of favor investment.

 

INVESTING IDEAS NEWSLETTER - lm

 

LO – The stock pulled back off all-time highs this week on no new news events. For yet another week the investment community is wondering if Lorillard will be taken out, likely by Reynolds American (RAI).

 

We continue to suggest that investors hold this stock into potential news of the buyout or until our long-term fair value price of the stock at $80/share is realized.  And we continue to assert that the company’s powerful earnings generation is anchored on its advantaged tobacco and e-cigarette portfolio.

 

Bottom line: we do not think LO will be imminently purchased and are staying long the stock that we added to Investing Ideas on 3/7/14. 

 

INVESTING IDEAS NEWSLETTER - lo


OC –  Owens Corning’s roofing & insulation segments draws more revenue from the renovation/repair segment versus raw housing starts. This makes intuitive sense as weather, plus wear and tear, occurs more frequently than construction of new homes.

 

Looking at the graph below, the variance between NAHB’s Remodeling Index and the Home Builders Index is easily noticeable. The Home Builders Index fluctuated from 8 to 70 compared with 21 to 57 for the Remolding Index. In other words, the remodeling market is less cyclical than the housing market, which should provide Owens Corning with stable earnings compared to housing related names such as Lennar, D.R. Horton, and KB Homes. 

 

INVESTING IDEAS NEWSLETTER - oc

 

RH – Restoration Hardware reports earnings Wednesday, June 11th after the close, and we are expecting revenue growth in the high teens. This is a tale of two halves for RH, with square footage growth weighted towards the back half of the year and the anniversary of the change in Source Book strategy starting in 3Q.

 

Our model is calling for low 20% revenue growth in the first half compared to high 20% in the back half, and 25% for the full year. That coupled with slight margin expansion puts us significantly ahead of the street for the both the first quarter and the balance of the year.

 

TIP –  Hedgeye's macro team added the iShares TIPS Bond ETF to Investing Ideas this week. Click here to read the full report from macro analyst Darius Dale.

 

*   *   *   *   *   *   *
 

Click on each title below to unlock the institutional content.

 

China to Implement QE?

Macro analyst Darius Dale takes a look at why it remains unlikely that he sees anything resembling meaningful monetary stimulus in China over the intermediate term.
INVESTING IDEAS NEWSLETTER - china

 

Corelogic Data for May Show Housing Is Slowing Rapidly

Hedgeye's Housing team analyzes CoreLogic's May HPI report, which showed further marked deceleration in the rate of home price growth nationally.

INVESTING IDEAS NEWSLETTER - housing1

 

Eye-Catching Industrials Data 

Industrials analyst Jay Van Sciver explains why ISM Manufacturing new orders continues to imply that the 1Q 2014 slowdown was a bit more than just weather.

INVESTING IDEAS NEWSLETTER - construction2


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Stock Report: iShares TIPS Bond ETF (TIP)

Stock Report: iShares TIPS Bond ETF (TIP) - HE II TIP table 6 6 14

THE HEDGEYE EDGE

“The Perils of Falling Inflation.” Like clockwork, that phrase was on the cover of the November 9th – 15th issue of The Economist right after headline CPI bottomed at +1% YoY in OCT ’13. Fast forward to today, domestic consumer price inflation – on the government’s conflicted and compromised metric – is running +100% higher at +2% YoY (APR ’14).

 

Inflation doubled, lol!

 

Ok, that’s probably not very funny – especially if you’re a consumer that is feeling the pinch of rising inflation. Growth in real incomes in America has slowed from its cycle-peak of +1.3% YoY in OCT ’13 to +0.3% YoY as of APR ’14. 

TIMESPAN

INTERMEDIATE TERM (TREND) (the next 3 months or more)

Luckily you, unlike the vast majority of Americans, can do something about it. In line with our #InflationAccelerating macro theme (introduced in JAN ‘14), we continue to anticipate that reported inflation will accelerate throughout 2014. There are three primary reasons we hold this view:

 

ONE: Holding current prices flat, the US dollar on a trade-weighted basis will dip into negative YoY territory in 2Q14E and will remain negative through 3Q14E, only returning to marginally positive by 4Q14E. This is a sharp deterioration from the +3-4% trend we’ve seen since the start of 1Q13. That should provide a material shock to the rate of change in import price inflation, which, at -0.3% YoY, is currently accelerating off the lows of late-2013 (-1.8% YoY in NOV).

 

Stock Report: iShares TIPS Bond ETF (TIP) - 1

 

TWO: We do not, however, think it’s prudent to hold current market prices flat. While most of Wall St. continues to anticipate higher rates amid tighter policy out of the Federal Reserve, we believe rising inflation will continue to slow consumption growth at the margins – which is ~70% of US GDP. That, coupled with the precipitous decline in both activity and price appreciation in the housing market, should eventually force the Fed to pare back their guidance on eventual monetary tightening. A cessation of their existing policy to taper is not out of the question by the third quarter. Commodities, which hold a -0.70 correlation to the USD (CRB Index vs. US Dollar Index; trailing 6M), should continue to grind higher. It’s worth noting that the CRB Index is up +9% YTD, besting the sub-6% return for the S&P 500. 

 

Stock Report: iShares TIPS Bond ETF (TIP) - 2

 

THREE: If none of our market-based forecasts come to fruition, we still have confidence in CPI accelerating over the intermediate term – if for no other reason than base effects. Without getting too geeked out on differential calculus, “simple” math would suggest that as comparative base rates decline sequentially – which they do throughout the balance of the year – the probability that the rate of change accelerates from the base rate (i.e. t₀) increases substantially. 

 

 

 

LONG-TERM (TAIL) (the next 3 years or less)

In line with our #StructuralInflation macro theme (introduced in APR ’14), we continue to think structural inflationary pressures are building up across the US economy. While we cede the point that considerable slack remains in the labor market, we do not think investors are paying nearly enough attention to the following supply-side pressures that are likely to perpetuate cost-push inflation over the long term:

 

  • S = I. Savings equals investment. That’s the most basic, underappreciated formula in all of the borderline useless economic theory we’ve all had the “great privilege” of learning. With rates being held at zero for such a long time, it should come as no surprise that real nonresidential fixed investment is up only +3.3% on a trailing 5Y CAGR basis. That’s the slowest rate of growth this far into an economic expansion over at least the last 30Y.
  • Again, when the central bank cuts rates to zero and leaves them there for the better part of six years, savings are naturally pulled from traditional investment vehicles that encourage investment (i.e. bank deposits) and into investment vehicles that actually encourage disinvestment – such as MLPs – in search of higher yields. Duh. Moreover, corporations – which have been increasingly rewarded by investors to buy back stock and ramp dividends – have largely done so in lieu of investing in their businesses. Now, as we approach what may be the end of economic cycle, many corporations streamlining trailing peak GDP growth rates and are scrambling to ramp up production into the inevitable result of seven years worth of broad SG&A deleveraging: limited production, transportation and storage capacity.
  • Q: What happens when company A acquires company B in industry C? A: There are fewer companies operating in industry C, effectively creating marginal headroom for company A to hike prices on its customers. This phenomenon has been happening all throughout the post-crisis era and is now accelerating to a hilt here in 2014. The total number of domestic enterprises has declined -6% since the pre-crisis peak, with larger firms leading the decline at -10%. For example, Airlines and Hotels are two obvious industries in which consumers are feeling the pricing pinch of decreased competition. Newsflash to domestic equity bulls: you can’t be long the Airlines on a tired industry consolidation thesis and say that there’s [going to be] no inflation. That’s disingenuous at best…

 

Stock Report: iShares TIPS Bond ETF (TIP) - 3

 

Stock Report: iShares TIPS Bond ETF (TIP) - 4

 

Stock Report: iShares TIPS Bond ETF (TIP) - 5

 

Stock Report: iShares TIPS Bond ETF (TIP) - 6

 

CONCLUSION

Buy TIPS. Protect you and your loved ones from a likely acceleration in inflation. Please note that we are not making a hysterical call for hyperinflation born out of serial money printing. That’s not our style. Rather, our style is to call it like it is: the US economy is likely to experience a run-of-the-mill pickup in reported inflation. A 3-handle on headline CPI – which remains a conflicted and compromised calculation – is probable over the intermediate term.

 

Inflation tripling, lol!

 

Darius Dale

Associate: Macro Team

 

Stock Report: iShares TIPS Bond ETF (TIP) - 7

ONE-YEAR TRAILING CHART

Stock Report: iShares TIPS Bond ETF (TIP) - HE II TIP chart 6 6 14


GETTING TIPSY RANTING ABOUT INFLATION

Takeaway: Inflation is accelerating and we continue to think investors should proactively prepare their portfolios for this economic phase change.

“The Perils of Falling Inflation.” Like clockwork, that phrase was on the cover of the November 9th – 15th issue of The Economist right after headline CPI bottomed at +1% YoY in OCT ’13. Fast forward to today, domestic consumer price inflation – on the government’s conflicted and compromised metric – is running +100% higher at +2% YoY (APR ’14).

 

GETTING TIPSY RANTING ABOUT INFLATION - 10

 

Inflation doubled, lol!

 

Ok, that’s probably not very funny – especially if you’re a consumer that is feeling the pinch of rising inflation. Growth in real incomes in America has slowed from its cycle-peak of +1.3% YoY in OCT ’13 to +0.3% YoY as of APR ’14.

 

As a late-20s working professional living in Manhattan, I can say honestly that just about everything I buy – from rent, to clothes, to food, even down to the occasional Bud Light – has gone up in price on a YoY basis at rates well north of +2%. Some things, like taxis and train tickets, are tracking up mid-to-high single digits from a YoY rate-of-change perspective. Obviously this is all specific to my consumption basket, but when I speak to people all across the country – be it the cab driver in San Francisco or the Midwestern woman on the plane ride next to me – all everyone wants to talk about these days is how expensive everything has gotten.

 

Again, anecdotal data is what it is, but I challenge you to find me someone who genuinely believes inflation is running at or below +2% or decelerating. Moving along, here are a few non-anecdotal data points that have hit my inbox in recent weeks (copy/pasted directly from StreetAccount):

 

  • The WSJ reported that the Organization for Economic Cooperation and Development (OECD) said the annual inflation rate in its 34-member states rose to 2% in April, from 1.6% in March. It noted that in the Group of 20 leading industrial and developing nations, inflation rose for a second month to 2.8% from 2.5%.
  • The WSJ reported that rents rose at shopping centers and malls for the 12th consecutive quarter in a sign that landlords are getting a boost from the improving economy and low level of commercial real-estate construction. Data from Reis showed asking rents at strip centers rose 0.4% q/q in Q1, to $19.42 per square foot, the highest level since late 2008. Asking rents at large regional malls rose 0.5% to $40.15 per square foot, also the highest since the end of 2008.
  • Bloomberg cited a report from Trulia, which showed none of the 100 largest metro areas had increases of more than 20% in residential asking prices last month - the first time in almost two years. It compares with seven metro areas that had such y/y gains in May 2013. The report said national asking prices gained 8% y/y in May, the slowest pace in 13 months, amid slumping demand from both traditional buyers and investors. Meanwhile, rent growth is accelerating. Rents are up 5.1% nationally, with apartments climbed 5.8% and single-family homes gaining 2.1%... #InflationAccelerating AND #HousingSlowdown in the same data point(s)… #awesome!

 

Perhaps I’m not alone…

 

INTERMEDIATE-TERM TREND VIEW

Luckily you, unlike the vast majority of Americans, can do something about it. In line with our #InflationAccelerating macro theme (introduced in JAN ‘14), we continue to anticipate that reported inflation will accelerate throughout 2014. There are three primary reasons we hold this view:

 

One: Holding current prices flat, the US dollar on a trade-weighted basis will dip into negative YoY territory in 2Q14E and will remain negative through 3Q14E, only returning to marginally positive by 4Q14E. This is a sharp deterioration from the +3-4% trend we’ve seen since the start of 1Q13. That should provide a material shock to the rate of change in import price inflation, which, at -0.3% YoY, is currently accelerating off the lows of late-2013 (-1.8% YoY in NOV).

 

GETTING TIPSY RANTING ABOUT INFLATION - 1

 

Two: We do not, however, think it’s prudent to hold current market prices flat. While most of Wall St. continues to anticipate higher rates amid tighter policy out of the Federal Reserve, we believe rising inflation will continue to slow consumption growth at the margins – which is ~70% of US GDP. That, coupled with the precipitous decline in both activity and price appreciation in the housing market, should eventually force the Fed to pare back their guidance on eventual monetary tightening. A cessation of their existing policy to taper is not out of the question by the third quarter. Commodities, which hold a -0.70 correlation to the USD (CRB Index vs. US Dollar Index; trailing 6M), should continue to grind higher. It’s worth noting that the CRB Index is up +9% YTD, besting the sub-6% return for the S&P 500. 

 

GETTING TIPSY RANTING ABOUT INFLATION - 2

 

GETTING TIPSY RANTING ABOUT INFLATION - Median CPI   US  Eurozone and China

 

Three: If none of our market-based forecasts come to fruition, we still have confidence in CPI accelerating over the intermediate term – if for no other reason than base effects. Without getting too geeked out on differential calculus, “simple” math would suggest that as comparative base rates decline sequentially – which they do throughout the balance of the year – the probability that the rate of change accelerates from the base rate (i.e. t₀) increases substantially.

 

GETTING TIPSY RANTING ABOUT INFLATION - CPI COMPS

 

LONG-TERM TAIL VIEW

In line with our #StructuralInflation macro theme (introduced in APR ’14), we continue to think structural inflationary pressures are building up across the US economy. While we cede the point that considerable slack remains in the labor market, we do not think investors are paying nearly enough attention to the following supply-side pressures that are likely to perpetuate cost-push inflation over the long term:

 

  1. S = I. Savings equals investment. That’s the most basic, underappreciated formula in all of the borderline useless economic theory we’ve all had the “great privilege” of learning at some of the world's best (i.e. overpriced) collegiate institutions. With rates being held at zero for such a long time, it should come as no surprise that real nonresidential fixed investment is up only +3.3% on a trailing 5Y CAGR basis. That’s the slowest rate of growth this far into an economic expansion over at least the last 30Y.
  2. Again, when the central bank cuts rates to zero and leaves them there for the better part of six years, savings are naturally pulled from traditional investment vehicles that encourage investment (e.g. growth stocks) and into investment vehicles that actually encourage disinvestment – such as MLPs – in search of higher yields. Duh. Moreover, corporations – which have been increasingly rewarded by investors to buy back stock and ramp dividends – have largely done so in lieu of investing in their businesses. Now, as we approach what may be the end of economic cycle, many corporations streamlining trailing peak GDP growth rates and are scrambling to ramp up production into the inevitable result of seven years worth of broad SG&A deleveraging: relatively depressed production, transportation and storage capacity.
  3. Q: What happens when company A acquires company B in industry C? A: There are fewer companies operating in industry C, effectively creating marginal headroom for company A to hike prices on its customers. This phenomenon has been happening all throughout the post-crisis era and is now accelerating to a hilt here in 2014. The total number of domestic enterprises has declined -6% since the pre-crisis peak, with larger firms leading the decline at -10%. For example, Airlines and Hotels are two obvious industries in which consumers are feeling the pricing pinch of decreased competition. Newsflash to whomever just bought the all-time high in the US equity market at 10-VIX: You can’t be long the Airlines on a tired industry consolidation thesis and say that there’s [going to be] no inflation. That’s disingenuous at best… Another newsflash: With the retail sales control group measure declining -0.1% in APR, it’s interesting to see that revolving consumer credit grew at a +12.3% SAAR pace in APR. It is likely that consumers are feeling the pinch of rising, underreported inflation and levering themselves up to keep pace!

 

GETTING TIPSY RANTING ABOUT INFLATION - 3

 

GETTING TIPSY RANTING ABOUT INFLATION - 4

 

GETTING TIPSY RANTING ABOUT INFLATION - 5

 

GETTING TIPSY RANTING ABOUT INFLATION - 6

 

CONCLUSION

Buy TIPS. Protect yourself and/or your clients from a likely acceleration in CPI. Please note that we are not making a hysterical call for hyperinflation born out of serial money printing. That’s not our style. Rather, our style is to call it like it is: the US economy is likely to experience a run-of-the-mill pickup in reported inflation. A 3-handle on headline CPI – which remains a conflicted and compromised calculation – is probable over the intermediate term.

 

Inflation tripling, lol!

 

Have a great weekend. If you get hungry at the beach, grill an iPad!

 

Darius Dale

Associate: Macro Team

 

GETTING TIPSY RANTING ABOUT INFLATION - 7


The Week Ahead

The Economic Data calendar for the week of the 9th of June through the 13th of June is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.

 

The Week Ahead - 06.06.14 Macro Week Ahead


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

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