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Replay | Inside Bannon's Brain with "The Fourth Turning" Author Neil Howe


Some say he is the “second most powerful man in the world.” 


Join acclaimed generational theorist Neil Howe — coauthor of The Fourth Turning — when he explains how the groundbreaking theories put forth in his prophetic 1997 book helped shape President Donald Trump’s controversial chief strategist Steve Bannon.


As Time wrote recently, “Bannon was captivated by a book called The Fourth Turning by generational theorists William Strauss and Neil Howe.” Neil was featured prominently in Bannon’s 2010 documentary Generation Zero which explains how the generational theories put forth in The Fourth Turning predicted the 2008 financial crisis and resulting political and social discord.



This thoughtful HedgeyeTV discussion will feature BIG IDEAS advanced in Howe’s book, how these various THEORIES have influenced Bannon’s politics and worldview, and what the ultimate IMPLICATIONS may be around the world in the months and years ahead.


Q&A with Neil Howe – only on HedgeyeTV

Cartoon of the Day: Stock Market Super Bowl

Cartoon of the Day: Stock Market Super Bowl - Growth and inflation cartoon 02.06.2017


We continue to see both the U.S. economy and inflation accelerating in 2017. That's bullish for stocks.



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The Best Way to Play U.S. Growth ↑, Inflation ↑


The January jobs report was released Friday. It was a big opportunity for investors positioned for accelerating U.S. growth and inflation data.


Year-over-year jobs growth accelerated for the first time in nearly two years.


As we wrote earlier today, prior to Friday's labor market data, jobs growth had been one of the only major economic indicators still in decline. Economic data, from GDP to Industrial Production to Durable Goods, bottomed in the second quarter of 2016 and are now accelerating. In other words, jobs growth further solidified a U.S. economic trend that we’ve been noting for some time now.


Here’s a breakdown of the jobs report (see video above for more):


  • Year-over-year jobs growth accelerated to 1.64% versus 1.5% in December (after declining for 23 straight months).
  • Average hourly earnings growth (a proxy for wage growth) declined to 2.5% (year-over-year) versus 2.8% in December. Underneath this surface weakness, however, "non-supervisory" hourly earnings growth (which represents 80% of American workers) actually rose to 2.9%, a new economic cycle high. 


We recently suggested “U.S. Growth ↑ + Inflation ↑ = Buy Financials.” We’re sticking with that call here, but at the right price. The Financials sector (XLF), and our favorite big cap way to be long the group is Bank of America (BAC), is overbought today after ripping +2% on Friday. On pullbacks, however, we continue to think it’s one of the best way to play growth and inflation accelerating.

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Inside Trump's Wall Street Reform Efforts: How to Fix Dodd-Frank Regulations

This special guest commentary was written by our friend Christopher WhalenKroll Bond Rating Agency


Inside Trump's Wall Street Reform Efforts: How to Fix Dodd-Frank Regulations - wall street sign 2


Recent statements from the Trump Administration regarding reform of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 have generated a number of questions from investors.


Kroll Bond Rating Agency (KBRA) opined last November ("Will the CHOICE Act be the First Trump Reform Legislation?") that our view of the likely reform agenda includes congressional passage of the Financial CHOICE Act sponsored by House Financial Services Committee Chairman Jeb Hensarling (R-TX).


Inside Trump's Wall Street Reform Efforts: How to Fix Dodd-Frank Regulations - whalen callout 2 6 17


That view has not changed. However, the dynamic political environment has generated some specific reform proposals.

The Volcker Rule

The Volcker Rule refers to the part of the Dodd–Frank Act originally proposed by former Federal Reserve Chairman Paul Volcker to restrict United States banks from making certain kinds of speculative investments for their own accounts. More important, the Volcker Rule addresses the conflict of interest that arises when a bank acts on behalf of a customer, on the one hand, and trades for its own account, on the other. KBRA believes that the basic goal of the Volcker Rule remains sound, but needs to be amended in two respects:


  • First, the administrative requirements of the Volcker Rule are byzantine and should be greatly simplified as part of a larger review of rules regarding liquidity and other Dodd-Frank and Basel III regulations. The process for implementing and reviewing compliance with the Volcker Rule is excessively complex, costly, and burdensome for banks.
  • Second, we believe for reasons related to market liquidity that the restrictions of the Volcker Rule should be confined to the depository and that affiliates of bank holding companies such as broker dealers and funds should be allowed to trade for their own accounts. Given adequate safeguards to isolate the depository from conflicts between the duty to the customer and the organization, allowing broker-dealers and other affiliates to trade for their own accounts will alleviate the market liquidity concerns that have existed since the Volcker Rule was implemented.

What Is a "Systemically Important" Bank?

National Economic Council Director Gary Cohn, who is evolving into the Trump Administration’s point man for regulatory reform, has suggested modification to the Financial Stability Oversight Council’s (FSOC) authority to designate non-banks as systemically important financial institutions (SIFI), and to the Dodd-Frank Act’s Orderly Liquidation Authority (OLA).


Cohn told the Wall Street Journal that both FSOC and the OLA would be reviewed. Perhaps most notably, Cohn stated: “We don’t think non-banks should be SIFIs.”


  • CompassPoint LLC writes: ”These comments reinforce our belief that the non-bank SIFI insurers—[Prudential, AIG, and MetLife]—will be de-designated and that the odds of additional non-bank SIFI designations in this administration are effectively zero.” KBRA agrees and believes that whether or not legislation is passed, the FSOC process isessentially moribund from today onward. Indeed, we expect that the litigation involving the SIFI designation of MetLife will likely be dropped by the Trump Treasury.
  • Regarding the OLA, we believe that as with the Volcker Rule, the big problem with the OLA is the overhead involved in compliance, including “living wills” and other onerous regulatory requirements. As KBRA has noted previously, the Federal Deposit Insurance Corporation is under no requirement to utilize living wills in resolving a large financial institution under Dodd-Frank. While the legal authority to take over a troubled financial institution is very important to avoiding a repeat of the Lehman Brothers debacle, the FDIC and other regulators should do any planning unilaterally and in private.

The Biggest Challenge For Financial Reform

Perhaps the biggest change for all financial services companies and professionals in 2017 is that the political narrative regarding financial regulation has shifted from a punitive focus with anti-business effects to a more traditionally conservative agenda focused on growth and jobs. By easing the political headwinds against banks and non-banks alike, the Trump Administration can greatly improve liquidity in the financial markets and enhance the opportunities for economic growth.


An important point to make regarding the regulatory response to the 2008 crisis is that a lack of liquidity, not capital, was the proximate cause of the catastrophe. Yet since 2008, regulators and policymakers have focused on increased capital for banks and restrictions on risk taking as a general panacea for preventing a future crisis.


Many of these requirements have been accompanied by regulatory requirements such as those of the Volcker Rule and the FSOC SIFI designation that, in our view, fail to address the problems that spawned them.


In general, KBRA believes that modifications to the Dodd-Frank law that lessen the regulatory burden but address the underlying causes of the crisis will be positive for investors. Any changes to the current regulatory system need to de-emphasize the mechanistic use of capital as a catch-all response to the financial crisis and instead construct policies to prevent the reoccurrence of acts of financial deception, particularly the use of hidden leverage to enhance short-term financial returns, that ultimately caused the 2008 financial crisis to occur in the first place.


This is a Hedgeye Guest Contributor piece written by Christopher Whalen of Kroll Bond Rating Agency. Whalen is a Senior Managing Director in the Financial Institutions Ratings Group. Over the past three decades, he has worked for financial firms including Bear, Stearns & Co., Prudential Securities, Tangent Capital Partners and Carrington. This piece does not necessarily reflect the opinion of Hedgeye.

An Update On The U.S. Economy: Are You Bullish Enough?

An Update On The U.S. Economy: Are You Bullish Enough? - bull 2 6 17


Are you bullish enough? 


It's an appropriate question to ask following last week's jobs report. Prior to Friday's labor market data, jobs growth had been one of the only major economic indicator still in decline. Economic data reported in the last few months, from U.S. GDP to Durable goods, found a bottom around August/September.


With the labor market growing, the sum total of all this evidence is crystal clear. The U.S. economy is accelerating again.

Jobs Growth: Picking up

#JobsReport #Wages


The January jobs report snapped a 23 month streak of declining jobs growth. As you can see in the Chart of the Day below (from today's Early Look), year-over-year non-farm payroll growth (the black line) accelerated to 1.64% versus 1.5% in December. 


Within the report, Bloomberg points out that average hourly earnings growth declined to 2.5% (year-over-year) versus 2.8% in December. Digging still deeper into the data quickly reveals Bloomberg's "analysis" misses the mark.


The pink line in the chart below shows "non-supervisory" hourly earnings growth of 2.9%, a new economic cycle high. But who cares about "non-supervisory" workers? And why the distinction? This is the best reading of the American people's earnings growth, since the number represents 80% of all U.S. workers. 


An Update On The U.S. Economy: Are You Bullish Enough? - 02.06.17 EL Chart

The U.S. Economy Is Growing

#Economy #GDP #Inflation


In isolation, the jobs report amounted to a modest improvement. But that matters. Consider it within the context of a broader U.S. data acceleration:


  • GDP: Fourth quarter U.S. GDP (year-over-year growth) came in at 1.9%, up from 1.7% in the third quarter (the second consecutive quarter of accelerating growth, since five quarters of decelerating growth to the 1.3% second quarter low.)
  • Industrial Production rose to +0.5% recently, breaking a 15-month streak of negative year-over-year growth. 
  • Durables Ex-Defense & Aircraft (household demand proxy) was +0.9% sequentially for December and improving solidly to +3.6% YoY = 3rd month of positive year-over-year growth
  • CPI: Inflation accelerated for a 5th consecutive month, taking consumer price growth to its highest level in 32-months (since May 2014) at +2.1% in December.
  • NFIB Small Business Optimism registered its highest print since 2004 at 105.80

Bottom Line 

Despite stocks sitting near all-time highs, the acceleration in U.S. jobs growth is yet another sign that the American economy is growing. We'll ask the question again.


Are you bullish enough?


The Zeitgeist According to Steve Bannon’s Favorite Demographer Neil Howe

The Zeitgeist According to Steve Bannon’s Favorite Demographer Neil Howe - TMS NH 2 1 Bannon NO TEXT

In the exclusive video above, Neil Howe and Hedgeye CEO Keith McCullough discuss the current political climate stoked by Bannon and Trump, how that could affect markets and more.

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