The data will set you free. Wall Street consensus positioning won't.
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President Donald Trump is a product of our tumultuous times. He's tapped into a gnawing feeling of economic and political insecurity. Shouting "fake news" in a press conference or clubbing politicians on Twitter resonates for a reason. Congressional job approval and mainstream media trust (or lack thereof) are in the proverbial basement, hovering near all-time lows.
From politicians to the mainstream media, confidence is withering.
As Hedgeye CEO Keith McCullough explains in the video below from The Macro Show earlier this year:
“If you really look at his strategy. He’s anti-mainstream media and anti-Congress. Do you know what the approval rating is for these two things are? Very, very low. Trump wakes up every day and he effectively enrages these two constituencies. But he’s got a lot of people that don’t like these things more than they don’t like him.”
Only 23% of Americans approve... 64% disapprove.
Only 21% of Americans have “a great deal” or “quite a lot” of confidence in TV news … versus 36% ten years ago.
Take a look at the Gallup polling data below. People were asked "how much confidence" do you have in each of the following institutions. Respondents answering "a great deal" or "quite a lot" has been slipping across the board for two decades.
Boding well for Trump, 42% of Americans say the country is on the right track today … that’s almost double the 24% at December 2015 lows.
In light of these numbers, don’t expect the Trump administration to stop bash Congress and the media any time soon.
If you'd like to ramp up exposure to U.S. growth accelerating, guess what? You can now buy it on sale. That's right, data on Retail Sales, Consumer Confidence, ISM Manufacturing, and S&P 500 earnings are all heating up. Meanwhile, the Russell 2000 fell -2% last week. As a pure play on the U.S economy accelerating, we suggest you buy it.
(Click here to read a brief primer on our U.S. economic growth call.)
$IWM #SmallCaps #GrowthAccelerating
The reasoning is fairly simple. The companies inside the Russell 2000 generate less than 20% of sales outside the U.S. By way of contrast, larger-cap S&P 500 companies generate nearly a third of revenues abroad. In other words, the Russell 2000 is more heavily levered to U.S. economic growth. It's also why the index is up +12% in the last six months.
There's another reason to like the Russell 2000: Wall Street consensus is short.
As you can see in the Chart of the Day below, the CFTC's latest data on institutional investor positioning in futures and options markets reveals "a spanking brand new net SHORT position in the Russell 2000 of -10,317 contracts (after getting -31,761 contracts SHORTER) last week," writes Hedgeye CEO Keith McCullough in today's Early Look. (A net negative number of contracts indicates Wall Street consensus is short.)
Bottom Line: It's simple... U.S. growth is accelerating. We think Wall Street's mounting short position is misguided. So buy the dip in the Russell 2000.
Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.
We’ve been talking a lot recently about the acceleration in retail bankruptcies – to the tune of 2 per week. We saw four retailers of size file Ch.11 in the last 7 days alone.
Take a close look at the chart below. It’s not what you’d expect to see.
Retail bankruptcies accelerated during the 2008-2009 financial crisis, as economic growth cratered. No real surprise—it’s what you’d presume would occur.
U.S. growth is accelerating, and yet .. retail bankruptcies are spiking to the highest levels we have ever seen. Not supposed to happen right?
My analyst team has been doing a lot of research into what’s going on. We have an idea on what’s driving this counterintuitive development.
We will explore this as one of our ‘game-changing’ themes in our “Retail 5.0” deck later this month. This is an important call. If you’re an institutional investor, email email@example.com for more info and access.
Our Industrials Team – led by Jay Van Sciver – is hosting an institutional call on our Deere (DE) short thesis.
With FY17 guidance likely to be updated in the May earnings report amid deteriorating credit, rising input costs, and ongoing unit declines, we believe investors should position accordingly. DE shares have risen sharply providing an unusually favorable opportunity.
The call will take place on Wednesday March 15th at 11am ET. Email firstname.lastname@example.org for more information.
Management Comments Don’t Match Data, As We See It: Ongoing deterioration in credit metrics and year-on-year increases in the lease portfolio portend pressure on DE Financial. A proper historical context implies that provisions will have to move significantly higher.
Materials Costs To Move Higher: While key suppliers may have limited the hit to DE from higher steel prices, we expect equipment margins to be compressed by rising input costs in FY17. Current estimates continue to incorporate aggressive margin assumptions.
Valued Incorrectly: We see investors applying a trough multiple to financial services earnings, which we believe is best valued on a multiple of book. We also see a trough multiple as inappropriate, as prior equipment cycles have lasted as long as many investors’ careers.
Not Trough: We do not believe DE results have ‘troughed’, with unit sales declines for the Ag Equipment industry ongoing. Viewed on a longer-term basis, the risk to units becomes clear, as referenced previous ‘troughs’ were comparatively minor relative to the current downcycle.
Ping email@example.com for more information. Please note if you are not a current subscriber to our Industrials research there will be a fee associated with this call.
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