The Gold Synchrony: Eat IT

Takeaway: Takeaway: Gold broke out of @Hedgeye’s immediate-term TRADE resistance level of $1285 on Thursday

Gold's refreshed immediate-term TRADE risk range is $1285-$1336 with intermediate-term upside to TREND resistance at $1381.

 

With the +3.4% gain week-over-week the consumer is lucky he won't be eating gold at the dinner table this weekend. Unfortunately, the CRB food index appreciated +3.10% to +22.8% YTD.

 

The repetitive call to front-run the Fed’s response to worse-than expected data undoubtedly manifest this week:

 

  • Headline CPI on Tuesday printed +0.4% vs. +0.2% expected (inflation accelerating)
  • Full-year GDP forecast from the Fed downwardly revised for the SEVENTH year in a row (growth slowing):

-        2.1-2.3% from 3.0% (predictable response)

-        2015 estimates held constant (possibly foreshadowing an 8th year?)

 

As inflation accelerates, and growth expectations decrease, the likelihood of an easier fed increases. We believe Thursday’s session was anything but coincidental:

 

  • Gold Surges 3.44%
  • Spot Volumes: 62%, 52%, and 49% above 1, 3, and 6-Month averages respectively
  • The 1-Week negative correlation tightens significantly to -0.91.
  • The 1, 3, and 6-month correlations have remained in the -0.60s from the March top in the Euro

 

The Gold Synchrony: Eat IT - GLD Levels Chart

 

Divergences in the equity market between consumer-based growth and inflationary sectors continues:

  • XLE (+13.5% YTD); XLU (+14.9%)
  • XLY (-1.00%)
  • SPX (+6.1%)

The Gold Synchrony: Eat IT - XLU XLY SPX chart

 

American consumption habits remain the driving force in our economy. Open-ended discussions on the flow through from fed policy, to credit growth, to spending are regularities on our team. We are continuously stuck with the assumptions from central planners:

 

Last ten Years:

  • Trailing 1-year personal savings rate: -9.0%
  • Median consumer net income margins have decreased over last 5 years of data availability (Net Income % After-Tax Earnings--> BLS PCE survey):
    • 2008: 1.88%
    • 2009: 1.94%
    • 2010: 1.94%
    • 2011: 1.61%
    • 2012: 1.38%

 

  • U.S. Private Sector Real Hourly Earnings Growth (Y/Y % Change): -43.7%
  • USD Index: -10.0%
  • CRB Index: +16.44% (+11.7% YTD)

 

The Gold Synchrony: Eat IT - Consumer Margin Compression

 

Unfortunately U.S. dollar devaluation and commodity inflation require fiscal subsidization when the wealth effect does not flow-through in the assumed capacity. Sure, the top 20% with the opportunity to own fixed assets and chase inflation in stock and commodity markets continue to take a larger portion of the total "wealth creation" from interest, dividends and property related income. This increase in wealth would arguably induce more spending. Reiterating the aforementioned point, exploring the validity of the central government’s assumptions on the trickle-down effect of a monetary increase is paramount to understanding the state of the consumer. Our analysis suggests the assumptions are much too high. More easily observed is the basket of goods we consume everyday:

 

The Gold Synchrony: Eat IT - CRB vs. USD

 

Despite the Fed’s revision yesterday, consensus expectations for growth in 2H remain comparatively optimistic in our opinion. We continue to like utilities, treasuries, and commodities on the long-side.

 

The Gold Synchrony: Eat IT - GIP Model

 

Ben Ryan

Analyst

 

 

 

 


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more