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Are You Bullish Enough? Inflation & Retail Sales Near 5-Year Highs

Are You Bullish Enough? Inflation & Retail Sales Near 5-Year Highs - bull or bear


Are you bullish enough on U.S. growth? That's a healthy question all investors should be asking themselves, especially in light of some seriously hot U.S. economic data this morning. The February Consumer Price Index (CPI) reading is just shy of a five-year high as reported this morning.


And despite Bloomberg suggesting Retail Sales "posted the smallest gain in six months" (on a month-over-month basis), year-over-year retail sales data hit the highest level since March 2012


(Click here to read a wrap of recently reported U.S. economic data.)


Hedgeye vs. Wall Street: U.S. Growth

#Economy #GDP 


So what's our current U.S. economic outlook? As you can see in the Chart of the Day below from today's Early Look, we're significantly more bullish than Wall Street consensus. Here are the numbers...


  • Hedgeye U.S. Real GDP estimates (year-over-year): Q1 = +2.28%; Q2 = +2.59%; Q3 = +2.89%; Q4 = +3.09%.
  • Wall Street Consensus Real GDP estimates (year-over-year): Q1 = +2.20%; Q2 = +2.45%; Q3 = +2.20%; Q4 = +2.30%.


Does your portfolio reflect the bullishness to come?


Are You Bullish Enough? Inflation & Retail Sales Near 5-Year Highs - Chart of the Day 3 15 17

OPEC Still Optimistic Production Cuts Will Bring Market Into Balance & Stabilize Prices

Meanwhile, EIA Forecasts US Shale Production Will Rise 1 Million B/D in 2017


OPEC Still Optimistic Production Cuts Will Bring Market Into Balance & Stabilize Prices - opec 22


VIENNA, AUSTRIA -- While the US East Coast is battling a Nor’Easter storm with blizzard conditions today, oil prices are bracing for another storm on Wednesday in the form of EIA’s weekly crude inventory data.


Last week US crude stocks rose for the 9th straight week by 8.2 million barrels a day (b/d) to 528 million barrels. Another EIA announcement of an increase in crude stocks on Wednesday would almost certainly send oil prices further downward.


On Monday, EIA released its monthly drilling activity report that forecasts April 2017 US shale production will increase by 109,000 b/d to 4.96 million b/d. The Permian Basin alone is forecast to increase by 79,000 b/d to 2.29 million b/d, according to EIA. If this trend continues, US shale production would add another one million b/d in 2017.

Is OPEC Worried?

If you thought all of this bearish data for oil prices was worrying OPEC, you would be wrong. Instead OPEC remains positive and calm about its production cut agreement working as intended to bring the market into balance and stabilize prices.

OPEC maintains that it is in the optimistic camp when it comes to oil prices and market rebalancing. Saudi Arabia also shares confidence that the production cut agreement is working and cautions against pessimism less than three months into the deal. However, the Saudis also acknowledged that better compliance is needed especially from Iraq and Russia.


OPEC seems to have its talking points down with all key players saying that there has been no decision yet about extending the agreement in June for another six months. OPEC’s compliance monitoring committee meets next week in Kuwait and will begin to discuss the extension.


However, don’t expect any final decision until OPEC’s regular meeting on May 25 in Vienna. Meanwhile OPEC is considering some additional conditions regarding an any possible extension.


First, it was conveyed that non-OPEC participants in production cut deal will be invited to participate in the the May 25 OPEC meeting in some way. There could also be changes to exempted countries in any extension.


The Saudis raised the specter that Iran may need to participate if the cuts are to be extended. In addition, because of the Nigeria's successful increase in production, there is the potential that its exemption under the production cut agreement may be lifted if cuts are extended for another six months.

Bottom Line

OPEC cautions about the market being misled about rising US crude stocks and rig counts. For OPEC, OECD inventory data is the metric it will use to gauge success of the production cut deal, and OPEC expects stocks to decrease into the five-year average range. However this seems impossible without an extension of the production cut deal.


In addition, both EIA and IEA forecasts show OECD inventories will be well above the five-year average range even with full OPEC compliance.


This is an excerpt from an institutional research note written by Hedgeye Senior Energy Policy analyst Joseph McMonigle. For access to the entire institutional research note ping sales@hedgeye.com.

IBM: Headcount Grower (or Headcount Lower?)

Takeaway: A weekly review of the biggest topics on our minds heading into the new week.

“At IBM alone, we have thousands of open positions at any given moment, and we intend to hire about 25,000 professionals in the next four years in the United States, 6,000 of those in 2017,” IBM CEO penned this line in an editorial published in the USA Today (12/13/16).


Does anyone really believe that? Let’s look at the numbers.


IBM: Headcount Grower (or Headcount Lower?) - ibm post1

Net of major divestitures the company’s headcount is down in the last few years.

IBM: Headcount Grower (or Headcount Lower?) - ibm post2

Including a real reduction in US headcount, as implied by the 401K chart above.

IBM: Headcount Grower (or Headcount Lower?) - ibm post3

IBM has taken annual workforce rebalancing charge in each of the last six years.

IBM: Headcount Grower (or Headcount Lower?) - ibm post4

The direction of revenue is likely the single best directional indicator of total headcount (rather than empty promises). 

IBM: Headcount Grower (or Headcount Lower?) - ibm post5


Who believes this stuff?


This is an institutional research note written by Hedgeye Technology analyst Ami Joseph. For access to our institutional research ping sales@hedgeye.com.

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3 Charts: The Calculated Politics Behind Trump's "Fake News" Fury

3 Charts: The Calculated Politics Behind Trump's "Fake News" Fury - trump fake news tweet2


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.”


Consider this...

1. Congressional Job Approval

Only 23% of Americans approve... 64% disapprove.


3 Charts: The Calculated Politics Behind Trump's "Fake News" Fury - congressional job approval

2. Mainstream Media Trust

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.


3 Charts: The Calculated Politics Behind Trump's "Fake News" Fury - trust in institutions


3 Charts: The Calculated Politics Behind Trump's "Fake News" Fury - trump post image

3. America ‘Right Direction or Wrong Track?’

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.


3 Charts: The Calculated Politics Behind Trump's "Fake News" Fury - rasmussen chart

In light of these numbers, don’t expect the Trump administration to stop bash Congress and the media any time soon.

Want to Buy U.S. Growth Accelerating? It's On Sale!

Want to Buy U.S. Growth Accelerating? It's On Sale! - sale


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.)

How To Play U.S. Growth Accelerating? Buy the Russell 2000

$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.


Want to Buy U.S. Growth Accelerating? It's On Sale! - 03.14.17 EL Chart

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