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ICYMI: ‘You Gotta Love Brexit’

Takeaway: Not the gloom and doom that many predicted, the FTSE 100 is up +14.6% since Britain’s E.U. referendum.

 

“In sharp contrast to the politicized-fear-mongering about Brexit, the British economy chugged along at +2.2% year-over-year growth in Q3. That was even better than the USA’s +1.7% year-over-year growth rate,” Hedgeye CEO Keith McCullough wrote recently. In other words, the U.K. economy is accelerating.

WHAT TO BUY...

We like Britain’s pound on the long side (especially against the euro).


Dale: Strong Dollar = Strong America

 

 

Here’s an obvious statement: The U.S. is a consumer-driven economy. Duh, right?

 

So that’s why we’re scratching our heads over recent mainstream media headlines suggesting a rising dollar is going to handicap U.S. industries. It’s illogical. A strengthening dollar means Americans have more purchasing power (i.e. they can buy more goods).

 

Here are a few reports we’ve seen recently:

 

(Note: The U.S. Dollar hit a 14-year high against the euro recently and the U.S. Dollar index is up 7.5% quarter-to-date.)

 

All of this postulating misses the mark. Think about it. Exports account for just 9% to 10% of U.S. GDP. Sure, a stronger dollar hurts exporters because companies are forced to sell their goods to foreigners whose currencies are relatively weaker against the dollar.

 

But, conversely, U.S. consumers can buy more goods with their stronger currency. And since consumption makes up roughly 70% of GDP, explains Hedgeye Senior Macro analyst Darius Dale, when the dollar is strengthening American consumers get a boost and so too does the U.S. economy.

 

There’s more. “If you think about U.S. exports, 50% are capital goods. In other words, we export production,” Dale explains in the video above. Here’s what that means in using a real world example, according to Dale:

 

“So we send China the stuff they need to make iPhones and they send us back more iPhones that we can buy in the Apple store. Now, if we’re buying more iPhones in the Apple store, well guess what? We’ll probably need to ship more capital goods to China.”

 

BOTTOM LINE: Strong Dollar = Strong America.


PREMIUM INSIGHT

A Deep Dive Into Our 4 Favorite Healthcare Shorts

A Deep Dive Into Our 4 Favorite Healthcare Shorts - TMS KM AF SHORTS 12 27 2016

There is still plenty juice out there for savvy Healthcare short sellers. Hedgeye CEO Keith McCullough and Healthcare analyst Andrew Freedman discuss our top four shorts in the sector.


Sell This Cyclical Stock

 

Sell Wabtec (WAB)?

 

Yes.

 

The $7 billion rail equipment manufacturer is not a growth stock. After a major investment cycle in rail equipment, over the last ten-plus years, the industry is slowing explains Hedgeye Industrials analyst Jay Van Sciver in the video above. 

 

“What we’re seeing is a major down cycle and historically that has tended to crush Wabtec’s margins,” Van Sciver says. “We’re looking at the youngest railcar fleet of the post-war period,” he says. “That’s big. This is no minor cycle.”

 

Want more? Click here for the “3 Reasons to Sell Wabtec.”


PREMIUM INSIGHT

Sell HCA: Here’s Why The Stock Has 30% Downside

Sell HCA: Here’s Why The Stock Has 30% Downside - NO TEXT Healthcare Sell HCA 12 28 16 TT

As an investor, what do you do with a company whose core business is slowing and has low quality assets? Simple. You sell it.


Did Trump Change the Republican Party Forever?

 

 

Donald Trump’s Election Day victory will go down in history for many reasons.

 

“This is probably the most incredible election ever in that we’ve never had a time when someone lost the popular vote by so much, and won the presidency without going to a vote in the House of Representatives,” says historian, author and Hedgeye Demography Sector Head Neil Howe.

 

Howe is referring to the rare case where no candidate wins a majority in the Electoral College and the vote is put to the House of Representatives. This is called a contingent election. “We’ve had this two times before. Rutherford B Hayes in 1876, that was the election that ended the Reconstruction. And we had it with John Quincy Adams,” he says.

 

What happened?

 

Well, Trump attracted a new Republican party voter. In the video clip above, Howe explains the breakdown of how Trump won.

 

Here are a few takeaways.

 

  • In 2012, the gap between the percentage of voters for Democrats versus Republicans in households making $50,000 or less was 12 percentage points wide. Trump halved that gap to 6 or 7 percentage points
  • The share rural voters going to the GOP continues to climb; 53% for McCain versus Obama; 60% for Romney versus Obama; 67% for Trump versus Clinton.
  • “Hillary piled up all these superfluous votes in New Jersey and California and New York. But it didn’t do any good.”
  • Trump got a higher share of Millennial voters than Republicans did in 2012.
  • More African Americans and Hispanics voted for Trump than for Romney. “Even though a lot of that had to do with Clinton rather than Obama I’m sure,” Howe says.

 

All of this means: “Trump is taking the GOP and radically shifting it to a lower income, lower socioeconomic base, which is increasingly rural,” Howe says. “It gets to the future of the party. Is it going to be Trump’s party or is it going to be the high and dry neoliberal globalist party?”

 

We’ll see. One thing is certain. It’s going to be an interesting four years.


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