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PREMIUM INSIGHT

ICYMI: The Industrial Recession Is Over. Here’s What to Buy Now

ICYMI: The Industrial Recession Is Over. Here’s What to Buy Now - ICYMI 1 20 2017 Industrials No Text b

Investors got the “all clear” sign to buy Industrials (XLI) yesterday. It was the only S&P 500 sector that was up on the day. To be clear, we think Industrials is the sector to own as the broader U.S. economy accelerates heading into 2017.


Geopolitical Risk Rising: A Foreign Policy Message From LT General Dan Christman

 

The swearing in of our 45th President marks a historic crossroads for American foreign policy. President Donald Trump has threatened to beat back an assurgent China, slap punitive tariffs on the goods of foreign countries who “don’t play by the rules,” and renegotiate a better deal with—as Trump might say—our thrifty NATO allies. Meanwhile, ISIS remains a global threat and Russian Prime Minister Vladimir Putin is flexing his geopolitical muscles.

 

To make matters worse, U.S. and South Korean officials said yesterday that North Korea may be readying two inter-continental ballistic missiles for a test launch in the not-too-distant future.

 

(Click here to read Senior Defense Policy analyst LtGen Emerson "Emo" Gardner’s analysis of the developing North Korea situation.)

 

What’s the future of U.S. global leadership in these uncertain times? In the video above, retired Lieutenant General Dan Christman and Hedgeye Senior National Security Analyst offers some answers.

 

“North Korea is an existential threat to us in the first term of Mr. Trump,” General Christman says. Both President Bush and President Obama were confronted with a Pacific crisis, early in the first year of their presidencies, that required a response from the White House, Defense Department and State Department that was “very delicate,” he says.

 

A working relationship with China is essential in thwarting an ambitious North Korea. Trump must tread lightly. So far, Christman is concerned:

 

“I’ve felt here for months and particularly in the wake of the phone call that President-elect Trump took with Taiwan President Tsai Ing-wen that this is the state-to-state issue to watch. Mr. Trump thinks he can work out a deal transactionally somehow by leveraging Taiwan. I think that’s a huge mistake. The reason I think it’s a mistake is because we need China’s help with North Korea.”

 

Trump’s tweets may have aggravated an already dicey situation.

 

“As we have seen him tweet and declare, if North Korea tries any additional long range missiles testing, Trump has said he’s not going to allow that to happen. What does that mean? Will he preemptively go after a missile on its launch pad.”

 

 

President Trump hasn’t been a warm welcome to our European allies either. “Mr. Trump does not hold a romantic view about NATO and the European Union,” Christman says. He was shocked to hear Trump suggest more countries might leave the European Union after Britain’s vote to exit.

 

“What one hears from Mr. Trump is American first,” Christman says. “One hopes that there will be an assurgent U.S. leadership.”

 

Time will tell.

 

Want More?

Click here to watch the entire discussion between Hedgeye CEO Keith McCullough and General Christman.


PREMIUM INSIGHT

Will China Collapse? No

Will China Collapse? No - TMS DD CHINA COLLAPSE 1 19 2017 NO TEXT

Make no mistake. China’s economy is slowing. But we don't see a cataclysmic crash in the making. Here's why.


ICYMI: U.S. Growth ↑ + Inflation ↑ = Buy Financials

 

 

“To get the Financials right, I think you need to get the rates of change in both growth and inflation right.”

–Hedgeye CEO Keith McCullough

 

It was a decidedly dismal day for the Financials sector (XLF) yesterday. The ETF got slammed, down -2.4% versus -0.3% for the broader market.

 

As the quote above indicates, whether to buy the Financials on this pullback has everything to do with your outlook for U.S. growth and inflation. On that score, the signal is crystal clear:

 

  • U.S. Growth: In the third quarter, GDP was up +1.7% year-over-year growth (+40 basis points versus the prior quarter). Prior to that, U.S. growth slowed for five consecutive quarters (from the peak of 3.3% in March 2015 to 1.3% in June 2016) before the trend finally flipped. We think growth accelerates heading into the fourth quarter.
  • Inflation: Today, the Consumer Price Index (CPI) hit a year-over-year headline rate of 2.1% for the month of December from 1.7% in the prior month. This effectively ended 30 straight months of inflation readings that were stubbornly below the Fed’s 2% target. We think inflation accelerates heading into the first quarter of 2017.

WHAT TO BUY

In Real-Time Alerts yesterday, Hedgeye CEO Keith McCullough signaled buy Bank of America (BAC). “If US economic data continues to accelerate, I think the Financials make another higher-low within their bullish intermediate-term TREND,” McCullough wrote. 


Inflation Alert: The Fed Isn’t Hawkish Enough

Takeaway: The Fed should be talking about a lot more rate hikes.

  

After completely missing the slowdown in the U.S. economy last year, a complacent Federal Reserve is at risk of falling behind the eight ball (once again).

 

Inflation is accelerating.

 

Today, the Consumer Price Index (CPI) hit a year-over-year headline rate of 2.1% for the month of December from 1.7% in the prior month. This effectively ended 30 straight months of inflation readings that were stubbornly below the Fed’s 2% target.

 

Fed officials will get what they wished for heading into the first quarter of 2017, however. Our proprietary leading indicator suggests year-over-year inflation could hit three, even four, percent.

 

“That’s going to be really nasty for the Fed to deal with,” says Hedgeye CEO Keith McCullough in the video above. “That’s why the Fed, for the first time, isn’t hawkish enough. They should be talking about a lot more rate hikes.”


PREMIUM INSIGHT

President Trump: A New Era of Geopolitics Begins with LTG Dan Christman

President Trump: A New Era of Geopolitics Begins with LTG Dan Christman - HE call geopolitics 0117

Hedgeye CEO Keith McCullough hosted a very special discussion with Hedgeye Potomac Senior National Security analyst General Dan Christman featuring live audience Q&A in which he shared his unique perspective on geopolitics in the Trump-Era.


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