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A Closer Look At Today's Durable Goods Data

Takeaway: Headline Durable Goods orders jumped +3.4% MoM and improved to +1.9% YoY but the internals were less sanguine.

A Closer Look At Today's Durable Goods Data - economic indicators cartoon 02.24.2016

 

Hiding in plain sight behind Wall Street's fallacious "all is good" narrative is U.S. economic reality. A deep dive into today's durable goods data confirms our dour outlook for U.S. growth.

 

Below is analysis from Hedgeye U.S. Macro analyst Christian Drake in a note sent to subscribers earlier this morning:

 

"Headline Durable Goods orders jumped +3.4% MoM and improved to +1.9% YoY but the internals were less sanguine with the bulk of the gain stemming from the +65% MoM increase in commercial aircraft & parts. Durables ex-Defense and Aircraft, which is most aligned with what actual households buy, rose +0.6% MoM but remains down -0.4% YoY.  

 

Meanwhile, Core Capital Goods fell MoM for a 3rd consecutive month, dropping -0.8 sequentially and holding at -5% YoY -  continuing the epic run of declining capital spending with negative year-over-year growth in 15 of the last 16 months."   

 

Here's the detailed breakdown in the chart below

 

Click image to enlarge

 

A Closer Look At Today's Durable Goods Data - durable goods 5 26

 

Next up Updates on GDP and corporate profits.

 

 


'We're In A Position Of Extreme Vulnerability' says Neil Howe

Takeaway: America is in a "position of extreme vulnerability."

Conventional wisdom suggests economic and related tensions wrought by The Great Recession are in the rearview. All is good. Sunny skies for miles.

 

Not so says Hedgeye Managing Director and Demography Sector Head Neil Howe, who kicked off John Mauldin's Strategic Investment Conference in Dallas with a bang. "Our first presentation from Neil Howe on the First Turning was the perfect set-up... and truly was a show stopper," Mauldin wrote following Howe's presentation.

 

In the wide-ranging interview below following his speech, Howe explains why America is in a "position of extreme vulnerability" based on "the mood of the electorate" and "widening generational inequity." He discusses everything from the rise of polarizing political figures like Donald Trump and Bernie Sanders to the Fed's "destructive monetary policy."  

Click to watch


3 Nasty Looking China Charts

Takeaway: All clear in China? Not by a long shot.

Editor's Note: As our Financials analyst Josh Steiner remarked on The Macro Show today, "Markets were in free-fall earlier this year and pundits were saying a recession was imminent. Then, in mid-February, it all stopped. One of the reasons is that China started pushing credit like crazy, reflating commodities, emerging markets and the U.S. stock market. But China cannot keep rapidly growing credit like it has been. China is now an enormous systemic risk to the global economy."

 

3 Nasty Looking China Charts - China cartoon 05.09.2016

(STEEL) free fallin'

"Chinese Steel – Risk measures were subdued last week. However, the price for Chinese steel continued to drop, falling by another 5% last week, bringing the month-over-month change to -21% as the mid-February to mid-April artificial reflation trade unwinds. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy." 

 

3 Nasty Looking China Charts - steiner3 5 25

GOT nON-PERFORMING LOANS?

"Chinese Non-Performing Loans – Chinese non-performing loans amount to 1,392 billion Yuan as of March 31, 2016, which is up +41.7% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly."

 

3 Nasty Looking China Charts - steiner2 5 25

Debt, Debt & More Debt...

"Chinese Credit Outstanding – Chinese credit outstanding amounts to 148.7 trillion RMB as of April 30, 2016, which is up +11.9% year over year. Note: this data is only updated monthly."

 

3 Nasty Looking China Charts - steiner1 5 25

 

*This is an excerpt from an institutional research note. To access our research email sales@hedgeye.com.


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Liquidation Risk, Durable Goods, #UKSlowing

Client Talking Points

Liquidation Risk

Bloomberg this AM: hedge funds have lost 1.8 percent this year, according to Hedge Fund Research's global index, the poorest performance since 2008.  The industry had net outflows of $16.6 billion in the past two quarters, the most since 2009, according to HFR.  In 2015, 979 funds closed, more than any year since 2009, according to the research firm.  To the extent redemptions and closures accelerate, expect to see crowded names and sectors like Kraft, Time Warner, Consumer Discretionary and Tech take a hit, while under-owned names and sectors like Utilities, Energy and Materials continue to thrive.

Durable Goods

Headline Durable Goods orders jumped +3.4% MoM and improved to +1.9% YoY but the internals were less sanguine with the bulk of gain stemming from the +65% MoM increase in commercial aircraft & parts, which is most aligned with what actual households buy - rose +0.6% MoM but remains down -.4% YoY.  Meanwhile, Core Capital Goods fell MoM for a 3rd consecutive month, dropping -0.8 sequentially and holding at -5% YoY -  continuing the epic run of declining capital spending with negative year-over-year growth in 15 of the last 16 months.   

 

#UKSlowing

The Financial Times was out w/ a piece this morning citing the risk to the FTSE All-Shares Index due to the downturn in the U.K. economy, which we’ve been forecasting since late last year and is being corroborate by every key category of high-frequency data slowing on a trending basis. This mainstream media’s first mention of economic risk to U.K. assets that doesn’t have anything to do with Brexit. Expect such headlines to accelerate even beyond next month’s likely “remain” vote.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
5/25/16 58% 2% 0% 10% 28% 2%
5/26/16 58% 2% 0% 10% 28% 2%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
5/25/16 58% 6% 0% 30% 85% 6%
5/26/16 58% 6% 0% 30% 85% 6%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
GLD

When Janet does have to acknowledge the deterioration in U.S. growth, we expect the policy shift to be dollar bearish on the margin. And, to the contrary, if the Fed RAISES RATES (June) into this slow-down, they’ll be the catalyst for DEFLATION (down yields) again anyway. And there’s nothing Gold (GLD) likes more than a falling dollar and falling interest rates which is why we added it to the long-side of Investing Ideas this week. Remember, this is the same week various Fed members were in public calling for a rate hike with the worst jobless claims print since 2012. #GoodLuck.

MCD

McDonald's (MCD) continues to evolve. The company's latest step is testing never frozen burgers at 14 units in the Dallas, TX area. This initiative could give them the ability to compete with better burger concepts such as Shake Shack, In-N-Out and Five Guys.

 

Meanwhile, there has been chatter about the lack of identity for their value platform in 2Q16. MCD is truly still in the testing phase as to what their national value message will be. We can appreciate the fact that they are testing multiple formats before fully committing.

 

In the meantime, the tailwind from all-day breakfast will continue to propel growth going forward, until lapping this initiative in 4Q16. We continue to favor MCD as one of the best LONGs in the market right now, due to actual growth and style factors that are friendly in volatile markets.

TLT

If you haven’t yet, you got another chance to buy long-term Treasuries at lower highs this week. If you’re already long of Long Bonds (TLT, ZROZ), stick with it. None of the relevant data released this past week suggests that growth could inflect and trend positive:

  • Thursday’s Jobless Claims Report was the worst print, in Y/Y rate of change terms, since 2012, and it was the fourth consecutive week of increasing jobless claims
  • Industrial Production declined -1.1% Y/Y for April, marking the 8th consecutive month of Y/Y contraction: #IndustrialRecession

Tying together a continued deceleration in growth with policy expectations, the most important callout is that our expectation for growth in Q2 is well below consensus and Fed expectations (which have been horribly inaccurate). 

Three for the Road

TWEET OF THE DAY

Had an interesting discussion on The Macro Show with @KeithMcCullough!

@HoweGeneration

QUOTE OF THE DAY

"There are three types of baseball players: those who make it happen, those who watch it happen, and those who wonder what happens."

-Tommy Lasorda

STAT OF THE DAY

John Kruk batted exactly .300 over his 10 year MLB career. In his rookie season, he batted .309


Daily Market Data Dump: Thursday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Thursday - equity markets 5 26

 

Daily Market Data Dump: Thursday - sector performance 5 26

 

Daily Market Data Dump: Thursday - volume 5 26

 

Daily Market Data Dump: Thursday - rates and spreads 5 26


CHART OF THE DAY: A Look At S&P 500 Multiple Expansion Off February Lows

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Senior Macro analyst Christian Drake. Click here to learn more.

 

"... Valuation is Not A Catalyst: Valuation isn’t an anchor in our decision making process over shorter-to-medium-term durations but it is a prime factor for others so the influence on prices can’t be dismissed outright. With SPX forward earnings estimates up just +1.5% off the lows, multiple expansion has driven most of the rebound in prices off the February lows. Upside to cycle peak valuation (recorded in 1H15) implies +68 SPX handles or +≈3.3% from current levels. In other words, unless the thesis is for accelerating earnings, that’s the upside you’re playing for under an assumption for a return to peak multiples."

 

CHART OF THE DAY: A Look At S&P 500 Multiple Expansion Off February Lows - SPX PE CoD


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.32%
  • SHORT SIGNALS 78.48%
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