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Alpert: The U.S. Economy 'Will Go Crazy' If Trump Does This


“The virtuous cycle of capital has broken down,” says Dan Alpert, Managing Partner at Westwood Capital in this new edition of Real Conversations.


That’s not hyperbole. Alpert wrote the book, “The Age of Oversupply.” In it, he argues that a global labor glut, excess productive capacity, and a rising ocean of cheap capital have kept the economies of the first world (notably the United States) mired in underemployment and anemic growth.

What is The Age of Oversupply 

In the “age of oversupply,” companies are unlikely to reinvest profits due to all this excess capacity. “When you have a global capital glut, capital starts to back up and say ‘Geez, you know I can’t make a dime taking risk free returns anywhere,’” Alpert says.


As a result, instead of reinvesting profits in their businesses, companies buy back stock and purchase competitors. Money finds its way into equity markets rather than factories, equipment, and more manpower.


“You don’t need additional primary investment so that capital becomes hyper activated in the secondary markets,” Alpert says in the video interview above with Hedgeye CEO Keith McCullough.


Sound familiar?


That’s why the $24 trillion worth in central bank asset purchases globally have been a drop in the bucket. Growth in productive capacity has been anemic so global economic growth continues to slow. According to the IMF, global growth for 2016 is expected to be 3.1% versus 3.2% in 2015. Advanced economies fared even worse, posting 1.9% growth versus 2.1% in 2015.

A $1 trillion Solution: Infrastructure Spending

There’s hope. In the video interview above, Alpert suggests a solution that the Trump Administration is already predisposed to endorse:


“If you have a massive glut of capital and it’s not flowing back into the U.S. economy in the form of productive plants and equipment, you really ought to take it using the agency that can borrow it cheaply, the U.S. government. Use it to pull up wages by reemploying a large number of steel workers, and construction workers and all of the support industries to rebuild our domestic infrastructure that is the shot in the arm that this country requires.”


On the campaign trail, President Donald Trump proposed $1 trillion in infrastructure spending. “Trump is absolutely right on about the need for an aggressive infrastructure program in the U.S.,” Alpert says.


The reason this stimulates economic growth is relatively simple to understand, Alpert says. By increasing the demand for skilled labor at the top, you employ the underemployed and create demand for other workers to fill those vacated positions and employ the unemployed. Alpert calls this “trickle down labor demand.”


“Take the former construction worker who’s now a bartender and give him a hammer back. Well, now you need a new guy to tend bar.”


Logistics… A fiscal spending program like the one proposed by Trump are typically spread out over a period of five years, Alpert says, so $200 billion each year.


“If you spend $200 billion in this economy in additional government infrastructure spending, rebuild bridges, airports and railways, especially if it’s well targeted. This economy is going to go crazy. It’s going to do great.”


Bottom line? If Trump gets his way and passes a targeted fiscal stimulus program, the U.S. economy is “going to go crazy.”

Poll of the Day: Stock Volatility -40% Since Election Day. Bullish or Bearish?

Takeaway: What do you think? Cast your vote. Let us know.

Poll of the Day: Stock Volatility -40% Since Election Day.  Bullish or Bearish? - bulls and bears




The Trump Tracker: Stock Market Next Stop? Correction or All-Time Highs?

The Trump Tracker: Stock Market Next Stop? Correction or All-Time Highs? - trump quote image


The post-Election Day exuberance among investors is obvious to even the most tangential of financial market watchers. But is it warranted?

Inside Our Trump Tracker

#Economy #Confidence #TrumpTrain


Before we answer that question, consider the facts (in our Trump Tracker, via the Early Look's Chart of the Day). Since Election Day, Wall Street has ratcheted up U.S. economic growth expectations. In just three months, GDP estimates for the first quarter of 2017 have risen 2 basis points to 2.3%. Consumer price inflation expectations for year-end 2017 are up 2 basis points too, to 2.2%.


Measures of consumer and small business confidence have spiked dramatically since Trump's election. Many have hit post-financial crisis highs. Here are the latest results compared to pre-election October readings:


  • Confidence Board Consumer Confidence: 111.8, up 11 points 
  • NFIB Small Business Optimism: 105.8, up 11 points


Investors, consumers and small businesses alike are clearly on the Trump Train.


The Trump Tracker: Stock Market Next Stop? Correction or All-Time Highs? - Trump Tracker CoD1

Inside Financial Markets Since Election Day

#GrowthAccelerating #Commodities #SmallCaps


Then there's the post-Election Day market moves:


  • Aluminum: +29%
  • Steel: +19%
  • Financials (XLF): +17%
  • Russell 2000 Value: 15.5%
  • Russell 2000: +13.7%
  • Industrials (XLI): +9.5%
  • S&P 500: +7.2%
  • U.S. Dollar Index: +2.5%


The common thread running through financial markets is U.S. growth expectations are rising.

the U.S. Economy is Growing: Complacency or Reality?

#GDP #Inflation #IndustrialRecession


We asked recently, "Are You Bullish Enough?" and added these facts to the mix:


  • 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.


Sure, the stock market bears can argue that complacency has set in. Since Election Day, the VIX, a stock market volatility index, is down almost -40% to a reading of 11.43. (Volatility rises when investors are fearful of the future.) Typically, when the VIX falls this low (below 12) it snaps up. Investors book gains. Stocks fall.


But as we wrote yesterday, stock market volume has been rising on days when stocks are up and falls on down days. This confirms conviction in the market moves. Investors are buying each rally and not selling the dip.

Bottom Line

The key takeaway is simple. All of this suggests investors stay invested in the stock market.

Cartoon of the Day: Snow Job

Cartoon of the Day: Snow Job - Fed snowman cartoon 02.08.2017


After completely missing the slowdown in economic growth last year, the Fed is now behind the eight ball on inflation.



Click here to receive our daily cartoon for free.

Here's Why Oil Prices Rose Despite Increase In Inventories

Here's Why Oil Prices Rose Despite Increase In Inventories - mcmonigle 2 8 17


The U.S. Energy Information Administration on Wednesday reported crude-oil inventories climbed by 13.8 million for the week ended Feb. 3. Oil prices rose on the day, a move confounding many who thought the increase would send prices lower.


No need to be confused.


"The market as a whole is focused on the OPEC deal," says Hedgeye Senior Energy Policy analyst Joe McMonigle. Secondary OPEC sources say the deal to cut the 14-member country's oil production, from 33.8 million barrels a day to 32.5 million barrels a day, has been 90% compliant.


"I'm still a skeptic on that point," McMonigle says.


The more important thing to watch, he says, is how higher oil prices (up 11% in the past three months) are affecting U.S. shale production, McMonigle says.


Active U.S. rig counts rose from 729 versus 571 a year ago. "The U.S. shale producers are really responding to the higher oil prices as a result of the OPEC deal," McMonigle says.


Click here to watch McMonigle's entire interview on BNN.

Why Does the Fed Keep Lowering Its Unemployment Threshold?

This special guest commentary was written by our friends Benn Steil and Emma SmithCouncil on Foreign Relations


Why Does the Fed Keep Lowering Its Unemployment Threshold? - steil fed


For years, Fed watchers have been getting antsy as unemployment falls toward NAIRU — the Fed’s estimate of the bound below which inflation rises. But as shown in the graphic above, each time unemployment has threatened to break through NAIRU the Fed has lowered NAIRU rather than raise interest rates. Why?


The answer would appear to be in wage growth. As shown in the small inset graph, there is a strong relationship between wage growth and slack in the labor market—as measured by the difference between unemployment and the Fed’s NAIRU estimate. What this suggests is that the Fed has consistently overestimated wage growth, leading it to lower NAIRU when new wage data come out.


As the yellow highlighted part of the graphic shows, we appear to be at a turning point. Unemployment is now near the bottom of the Fed’s NAIRU range. This supports the case for Fed rate hikes.


But beware. Though the Atlanta Fed measure of wage growth remains strong, at around 3.5 percent, it is slowing. Should it fall to 2.5 percent, we can, on past experience, expect the Fed to lower NAIRU again, such that its measure of labor market slack rises from zero to as much as 0.8 percentage points. That would mean putting rate hikes on hold.


This is a Hedgeye Guest Contributor piece written by Benn Steil and Emma Smith and reposted from the Council on Foreign Relations’ Geo-Graphics blog. Mr Steil is director of international economics at the Council on Foreign Relations and author of The Battle of Bretton Woods. It does not necessarily reflect the opinion of Hedgeye.

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The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

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