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The U.S. Economy Is Growing: Sell Long-Term Bonds & Gold

The U.S. Economy Is Growing: Sell Long-Term Bonds & Gold - growth info

Sell Gold and Long-Term Bonds

 

Simply put, the U.S. economy is accelerating and that's not good for either Long Bonds or Gold. Case in point, yesterday's ISM Manufacturing release hit a 2-year high. This follows recently reported economic data from GDP to Retail Sales to Durable Goods orders that's been better than expected.

 

If you've been following Hedgeye for a while you might be shocked to see the aforementioned investment conclusions. We had been bullish on Long-Term Treasury Bonds (TLT) since late 2014 and liked Gold (GLD) for much of 2016. But we also told subscribers to sell it all shortly after Donald Trump's Election Day victory. Why this seemingly radical change? It's actually not radical at all but consistent with a fundamental aspect of our research process. 

 

Let's back up a bit. It was our contention in 2014 that the U.S. economy was slowing. It did. U.S. growth peaked in March of 2015 at 3.3% (on a year-over-year basis) and declined to 1.3% in June 2016. Over that period, Gold, Long-Term Treasury bonds, and the Utilities sector (XLU) posted double-digit gains. These typically outperform in a slow growth environment.

 

Shortly thereafter, the market began betting that the U.S. economy bottomed. The traditional U.S. growth slowing leaders turned into laggards and sectors tethered to an accelerating U.S. economy, like Industrials (XLI) and Financials (XLF), came roaring back. (See our detailed explanation in "Why Trump Didn't Kick-Start the U.S. Economy.")

U.S. Economic Data Hadn't Confirmed Recovery (Yet)

#Economy #GDP #Recession

 

The market was front-running the U.S. economic data. As the numbers rolled in (just before Trump's victory in early November), however, the data started to rubber-stamp investor's bets:

 

  • Durable goods and Retail Sales data for the month of October began improving.
  • Then previously recessionary Industrial Production data started to look up.
  • U.S. GDP for the third quarter stopped slowing, rising to 1.7% after five quarters of deceleration from 3.3% year-over-year growth in March 2015 all the way to 1.3% in June 2016.

 

The ISM Manufacturing report from yesterday is further confirmation. As you can see in the Chart of the Day below, the ISM numbers started to signal that we were lapping the recessionary lows of the Industrial economy back in August.

 

Take a look at the breakdown of data below:

 

  1. August 2016 ISM = 49.4
  2. October 2016 ISM = 51.5
  3. September 2016 ISM = 51.9
  4. November 2016 ISM = 53.2
  5. December 2016 ISM = 54.7

 

"In other words, in addition to ISM, Industrial Production, Durable Goods, etc., there’s now plenty of evidence to suggest that the Industrial & Manufacturing #Recession that the US experienced bottomed in August-September 2016," Hedgeye CEO Keith McCullough wrote in today's Early Look. In the fourth quarter of 2016, as the U.S. economy was bottoming, Gold and Long-Term Bonds lost -13.1% and -14.1% respectively.

 

The U.S. Economy Is Growing: Sell Long-Term Bonds & Gold - 01.04.17 EL Chart

the U.S. Economy Will continue to Grow...

#GrowthAccelerating (tickers: TLT, GLD)

 

All of this supports our current research call on U.S. growth accelerating. It's also why investors should now short Long-term bonds (TLT) and Gold (GLD).

 

Our predictive tracking algorithm suggests U.S. GDP will come in at 1.9% growth in the fourth quarter of 2016 (the Federal government's first estimate will be released on January 27th). Add all this together and we'd expect more carnage for investors in Long Bonds and Gold.

 

Sell it.


Here’s The Only Emerging Market We Like Right Now

 

RUSSIA.

 

That’s right. We like Russia, even after Russia’s RTSI stock index rose 52.2% in 2016 and after President Barack Obama’s recent retaliatory sanctions against the country for alleged interference in the 2016 presidential election.

 

Why?

 

Our predictive tracking algorithm – the GIP model (which stands for Growth, Inflation, Policy) – suggests the Russian economy will continue growing while inflation slows through the first half of 2017. We call this setup Quad 1 and it is very bullish Russian stocks, explains Senior Macro analyst Darius Dale in the video above. (Click here to learn more about how we model global economies.)

 

As Dale wrote recently in a note to subscribers:

 

“Part of our bullish thesis on Russia – which is the only emerging market we like here – is the deepening of Trump/Putin relations that may eventually lead to an unwind of sanctions on trade and capital flows which have helped perpetuate one of Russia’s most protracted recessions in the modern era.”

 

Or as Dale puts it more succinctly in the video above, the Russian economy is growing and you could also get some “goodies from the Trump White House as well.”


Cartoon of the Day: "Euros Keep Falling On My Head"

Cartoon of the Day: "Euros Keep Falling On My Head" - Euro rain cartoon 01.03.2017

 

The Euro has weakened -11.5% versus the U.S. Dollar since last May, as the U.S. economy strengthens and Europe fumbles on fixing its many issues.


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 80.45%
  • SHORT SIGNALS 78.38%

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).


PREMIUM INSIGHT

The Future for Obamacare: 3 Major Healthcare Policy Themes of 2017

The Future for Obamacare: 3 Major Healthcare Policy Themes of 2017 - obamacare trump

Since the election, everything has changed. Other than geo-politics and energy, there is no area of federal policy more poised for change than healthcare. In this piece, Healthcare Policy analyst Emily Evans dissects the future of Obamacare and the healthcare changes to expect out of President Trump and a GOP-controlled Congress.


Why Trump Didn't Kick-Start the U.S. Economy

Why Trump Didn't Kick-Start the U.S. Economy - trump hat making

 

Wall Street is betting that Donald Trump can kick-start the U.S. economy. The story goes that tax cuts and infrastructure spending will unleash a boom of pent-up economic activity. But let's not give the President-elect too much undue credit. Before he even takes office on January 20th, Trump will inherit an accelerating U.S. economy. Consider the evidence.

The market already sniffed out An Accelerating U.S. Economy

 

Sure, since Election Day, investors have been betting on Trump by buying the Russell 2000. It's up 14.8% since then, as a pure play, domestic-oriented stock index. But the market started to front-run U.S. growth accelerating back mid-2016. 

 

Check out the sector performance from June 30th until just before Trump's victory in the chart below. Utilities (XLU), the classic outperformer when U.S. growth is slowing, was lagging while sectors tied to U.S. growth accelerating, like Industrials (XLI), Financials (XLF) and Materials (XLB), started to lead the pack. Note: This was a complete reversal of the trend in which Utilities led the sectors and Financials lagged.

 

Treasury bond yields, another important barometer of economic activity, also bottomed around this time. (Falling bond yields generally portend slower growth and conversely yields often rise during acceleration.) On July 6th, the 10-year Treasury yield hit 1.32% and have backed-up to 2.5% today.

 

Why Trump Didn't Kick-Start the U.S. Economy - S P 500 Sector Performance

U.S. Growth Expectations Were Confirmed by Economic Data

 

Data collected just prior to Trump's win, rubber stamped the market's prediction that the U.S. economy had bottomed.

 

  • Durable goods and Retail Sales data for the month of October began improving.
  • Then previously recessionary Industrial Production data started to look up.
  • U.S. GDP for the third quarter stopped slowing, after five quarters of deceleration from 3.3% year-over-year growth in March 2015 to 1.3% in June 2016, .

 

Now that U.S. growth is so clearly accelerating, the U.S. dollar is ripping to the upside. As you can see in the Chart of the Day below, in the fourth quarter alone, the dollar was up +8.5%.

 

(Note: When U.S. growth and inflation are accelerating, we call this Quad 2 in our proprietary GIP model [Growth, Inflation, Policy]. To learn more check out, "A Closer Look At How We Actually Model The U.S. Economy.")

 

Why Trump Didn't Kick-Start the U.S. Economy - 01.03.17 EL Chart

 

Now, to be fair, Trump can be credited with instilling a countrywide euphoria (i.e. Trumphoria) that has been spilling into recently reported November economic data. Time will tell whether it's justified but for the time being the data corrobates Wall Street's #TrumpTrade.

Bottom Line

 

To be sure, we're in for an interesting 2017 under President Trump. This morning's mainstream media freakout is over Trump's tweets related to the ongoing tit-for-tat trade battles with China, the nuclear armament of North Korea, a border tax on General Motors and the wholesale repeal of Obamacare.

 

But a lot can happen in between Trump's 140 character tweet storms and the signing of actual legislation. In terms of market implications, we'll have to wait and see how this all shakes out. (Hedgeye's Washington Policy research team offered up their Trump policy predictions in a recent HedgeyeTV special, "Our Top Five Trump Administration Investing Themes.")

 

For now, we remain bullish on U.S. stocks as the economy continues to accelerate, at least until Inauguration Day.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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