We can learn much about current presidential election uncertainty by thinking about pre-Brexit polling in Britain.
A New York Times story today calls into question current presidential election polling. The key claim is that a USC/LA Times poll overweights small groups thereby positively distorting Donald Trump's favorability among voters. Hedgeye Director of Research Daryl Jones discusses what this means in today's Early Look (our morning newsletter to investors):
"Interestingly, if we remove that poll from the last 10 major polls, Clinton's lead jumps to +8. Perhaps then, the non-consensus view is not that the polls are wrong and Trump still has a shot, but rather the polls are wrong and Clinton is going to win and the Democrats are going to run the table? The market might like a Clinton Presidency better than a Trump Presidency, but it probably won’t like a clean sweep by the Democrats.
That all said, anyone remember the polls before Brexit?"
Point taken. As you can see in the chart above, just before the British referendum about whether to stay or leave the European Union odds were heavily staked in favor of the stay camp. We all know how that turned out. Whether or not Clinton is actually leading in the polls doesn't necessarily matter.
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.
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.
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