U.S. economic growth continues down the slope, from 3% to 2% to 1% to...
In this brief excerpt from The Macro Show, Hedgeye CEO Keith McCullough explains what mainstream media networks missed about U.S. economic growth and the broader implications for investors.
Takeaway: Supermarket chain Kroger faces growing underfunded pension fund liabilities that are particularly at risk in a financial market downturn.
The pop in Kroger (KR) shares today isn’t sustainable. The stock is up on a Wall Street analyst report arguing that the company’s "Venture Concepts could ultimately unlock $4 to $12/share value for Kroger."
However, much like the risks embedded in Kroger’s exposure to underfunded pension plans, buying the supermarket chain’s shares up here could unwind quickly and unexpectedly.
Hedgeye Consumer Staples analyst Howard Penney has been warning about risks embedded in Kroger shares. A principle concern is Kroger’s exposure to a large number of multi-employer pension plans that the company keeps intentionally underfunded.
Kroger is one of the largest unionized employers in the United States. About 375,000 of their employees are covered by roughly 300 collective bargaining agreements. Kroger employees participate in 36 multi-employer pension plans (MPP), with a combined $70 billion in assets and $100 billion in associated liabilities.
“Kroger’s management team and industry analysts continue to ignore and understate the risks that multi-employer pension plans (MPPs) present to Kroger’s future growth prospects,” Penney wrote in a recent institutional research note.
That’s a big problem. Here’s what you need to know:
Bottom Line: Kroger’s problems run deep. Sell.
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Want to read more? Click here to check out Penney’s Investopedia article on Kroger.
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Takeaway: The average U.S. economic cycle lasts 59 months before recession. We are 28 months past that.
REALITY: The U.S. economy is in its 87th month of economic expansion... an extremely long expansion by historical standards.
History is clear on this. Average U.S. economic cycle last 59 months before recession. We are now 28 months past that.
That's why this new statement from New York Fed head Bill Dudley is up there as one of the more irresponsible statements (maybe not "the most irresponsible") we've read recently.
"I think this economic expansion can last a good while longer," Dudley. The Fed, he said, is aiming for a best-case scenario in which the economy grows at a "moderate rate over the next five to 10 years" while unemployment remains around 5 percent or a bit lower "and just have a very long-lived economic expansion."
We invite and encourage Mr. Dudley to peruse some recent Hedgeye commentary.
We wouldn't bet that economic reality ceases to exist ... just because the Fed says so.
Takeaway: This is a brief (complimentary) excerpt from this morning's Early Look note.
What’s really dangerous are politicians, on both the left and the right, having absolutely no clue about economic cycles. What’s dangerously normal about this cycle is that GDP isn’t going to hang out around 2% forever. It’s already gone to 1%. After that is 0%.
Unlike one of my competitors (Hyman) who said (yesterday) “I think the economy has years to run and a recession is years away”, I’m here to remind you that Industrials/Cyclicals are already in a #DoubleDipRecession and a broader slowdown towards 0% is months away.
You’ll have to fact check this, but I think I’m one of the few who has proactively called the last 3 US recessions, whereas most of my Old Wall competition hasn’t called one. The establishment of consensus economics is dangerous. That’s not a new normal either.
Am I concerned about this? You’re damn right I am. How many times can the “blue chip” economists who have been advising both Republican and Democrat Presidents not only miss the topping process of cycles, but their inevitable rate of change slow-downs?
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