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VNQ: Adding Vanguard REIT ETF to Investing Ideas

Takeaway: We are adding REITs (VNQ) to Investing Ideas.

Please note that we are adding VNQ to Investing Ideas today. Below is a brief note written earlier this morning by Hedgeye CEO Keith McCullough.

 

VNQ: Adding Vanguard REIT ETF to Investing Ideas - z22

 

On Tuesday I presented our Q2 Global Macro Themes that boiled down to Lower-For-Longer (on rates). 

 

Q2 2015 MACRO THEMES OVERVIEW:

 

#LateCycle USA: Employment, Inflation and Earnings follow an archetypic progression over the course of the economic cycle and always look best before the crest.  We’ll detail where we are in the current cycle, the likely trajectory for this trinity of late-cycle macro indicators from here and how best to be positioned in the twilight of the current expansion.  

 

#DemographicYields: Year after year in the post-crisis era, investors, economists and policy-makers alike have consistently seen their estimates for GDP growth, inflation and interest rates surprised to the downside. Perhaps there is some merit to the “secular stagnation” thesis most recently highlighted by Bernanke’s blog. In this theme, we pull back the curtains on the impact of demographics on the domestic and global economy. The conclusion? Lower-for-longer...
 

Oil’s #DeflationDeck: Taking a birds-eye view of oil prices throughout the peaks and troughs in business cycles provides essential context as deflation’s dominoes continue falling on a global scale. With the U.S. production machine changing the supply/demand dynamics in global energy markets, a deep-dive of this shift is key to generating sector-specific alpha into

 

One way to invest in Lower-For-Longer, from an equity perspective, is being long US REITS. They are testing the low-end of my immediate-term TRADE range today, but remain bullish from a TREND perspective.

 

KM

 


McCullough: Secular Stagnation Is a Real and Systemic Threat

 

In this brief Q&A excerpt from Hedgeye’s Q2 quarterly macro themes call, CEO Keith McCullough discusses why former Fed chairman Ben Bernanke has the story completely wrong on secular stagnation.


Regulatory Shout-Out | New York Judge To Congress: Write A Law, Already!

By Moshe Silver

Regulatory Shout-Out | New York Judge To Congress: Write A Law, Already! - jed1

 

New York district judge Jed Rakoff continues to annoy folks by insisting that government do its job.  In his famous rant about a proposed settlement between the SEC and Citigroup over allegations of billion-dollar fraud, Rakoff said “you’re asking me to exercise my authority, without exercising my judgment,” pushing back against the age-old practice where the SEC reaches a settlement with an accused party and a court rubber stamps it.  The standard outcome is, the accused pays a lot of money to the SEC, the SEC doesn’t identify accused individuals, no one has to admit to anything, and the firm or individuals who paid the settlement resume Business As Usual.

 

If, like us, you get your daily dose of rage by watching the ongoing blatant collusion between the worst of Wall Street and government’s “brightest and best,” you may recall that Rakoff held firm on not approving the Citi/SEC settlement without knowing the details.  Finally, the SEC and Citibank got together and sued in appeals court to force Rakoff to sign off.  We think this looks like the sheriff and the burglars getting together to poison the watchdog, but the courts are generally not interested in our opinion.

 

Now, Judge Rakoff is giving the SEC the go-ahead to proceed with a civil insider trading case against two stockbrokers, even though federal prosecutors have dropped the case. 

 

Prosecutors are treading gingerly after an appeals court threw out the insider trading convictions of Anthony Chiasson and Todd Newman, respectively of Level Global Investors and Diamondback Capital.  This was a mega-high-profile case – complete with FBI raids of hedge fund offices in broad daylight – and was considered a major win for the government.  Until another arm of that same government ruled that – in the absence of clearly defined insider trading laws – prosecutors had to meet an increasingly heavy burden of evidence, the further the insider tip was from its source.  In the Newman case, the fund managers were found to have benefited from tips that originated three or four degrees of separation away from them and their firms – hardly the same as handing the CFO a bag full of unmarked $100 dollar bills to get him to tell you what next week’s earnings report will be.

 

Judge Rakoff found that, while prosecutors may not have been comfortable bringing a criminal case, the charges meet the lower standards of evidence for civil cases, and the SEC could proceed with its independent case.

 

But Judge Rakoff also wrote that “difficulties” arise from the current scenario, where courts and regulators are forced to make insider trading law case by case.  “The tensions thereby created cannot always be resolved in satisfactory fashion,” he wrote, “thus reinforcing the need for Congressional action.”

 

Late last year Supreme Court justices Scalia and Thomas wrote that it is not up to appointed members of government agencies (the SEC, the Justice Department) to decide what constitutes a federal crime.  The court has declined to hear insider trading appeals, indicating a general discomfort with letting the SEC call the shots on a case-by-case basis, in the absence of actual legislation.

 

Judge Rakoff suggests that Congress should make black-letter laws defining insider trading, thereby telling prosecutors when they can bring future cases.  These laws would clarify categories requiring punishment for wrongdoing – which, unlike the current practice of settling with the Commission, would require identifying wrongdoers by name and maybe even putting them in prison.

 

Following up on our favorite legal doctrine, the Law of Unintended Consequences, we note that, the minute Congress sets out to write laws defining securities fraud in such a way that people run a real risk of going to prison, there will be a massive shift in campaign funding.

 

According to the website OpenSecrets.org, the financial and securities sector comes in as far and away the largest donor to Congressional races – nearly twice the amount given by the next-largest donor group: lawyers (who get paid to represent guys on Wall Street… are you beginning to see where this is going?) 

We applaud Judge Rakoff for telling Congress it’s time they actually do their job.

 

A man can dream, can’t he?

 

Moshe Silver is a Managing Director at Hedgeye Risk Management and author of Fixing a Broken Wall Street.

 

 


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INITIAL CLAIMS | EGG-CELLENT

Takeaway: Inclusive of the holiday distortion, the separations side of the labor market continues to signal ongoing strength.

Seasonal distortions in high frequency macro data during peri-holiday periods are notoriously prevalent.  Floating holidays, such as Easter, are particularly challenging in terms of normalizing so investors should take an un-convicted view of the single-week seasonally adjusted initial claims data in isolation.   

 

Indeed, over the past five years, the holiday week data has carried a discretely upward bias with the week-over-week change averaging +20K.  This morning’s data – which was up +14K WoW - is largely congruent with the recent historical tendency.

 

Holiday related noise aside, the broader conclusion remains unchanged.   With single week claims holding below the 300K level, rolling claims improving to their best level since June of 2000, and the year-over-year change in rolling NSA claims improving to -13% in the latest week, the separations side of the labor market continues to signal ongoing strength.   

 

And while conspicuous weakness in the energy sector remains  a concern along with emergent weakness in goods employment (strong dollar, declining export demand, lower energy sector investment, and residual port shutdown impacts), strength in the balance of the economy continues to swamp that duo of drags, for now.

 

INITIAL CLAIMS | EGG-CELLENT - IC Easter Wk historical

 

The Data

Prior to revision, initial jobless claims rose 13k to 281k from 268k WoW, as the prior week's number was revised down by -1k to 267k.

 

The headline (unrevised) number shows claims were higher by 14k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -2.25k WoW to 282.25k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -13.3% lower YoY, which is a sequential improvement versus the previous week's YoY change of -11.3%

 

Our basket of energy-heavy state claims fell in the week ending March 28th. However, as oil prices remain low, the spread between that basket and the U.S. as a whole continued to widen to 27.5 from 24.8.

 

INITIAL CLAIMS | EGG-CELLENT - Claims20 normal

 

INITIAL CLAIMS | EGG-CELLENT - Claims2 normal

 

INITIAL CLAIMS | EGG-CELLENT - Claims3 normal

 

INITIAL CLAIMS | EGG-CELLENT - Claims4 normal

 

INITIAL CLAIMS | EGG-CELLENT - Claims5 normal

 

INITIAL CLAIMS | EGG-CELLENT - Claims6 normal

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. It was originally published April 09, 2015 at 08:07. Click link above to subscribe.

Keith's Daily Trading Ranges [Unlocked] - Slide1

 

BULLISH TRENDS

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BEARISH TRENDS

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Keith's Macro Notebook 4/9: Japan | Commodities | Gold

 

Hedgeye Macro Analyst Ben Ryan shares the top three things in CEO Keith McCullough's macro notebook this morning.


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