U.S. ECONOMIC UPDATE MACRO February 5, 2014
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1Q14 MACRO THEMES REVIEW #INFLATIONACCELERATING AND #GROWTHDIVERGENCES
INFLATION: ARE COMMODITIES BASING? 370 HEDGEYE QUANTITATIVE SETUP: COMMODITY COMPLEX CRB INDEX TREND = 278 TAIL = 285 350 330 310 290 270 250 HEDGEYE 4
COMMODITY BASE EFFECT TAILWIND CPI READINGS SHOULD COME IN ~100+ BASIS POINTS HIGHER GLOBALLY OVER THE INTERMEDIATE TERM Thomson/Reuters CRB Commodities Index, Monthly Average YoY Compounded at +1% per Month From Here 50% Compounded at +3% per Month From Here Median YoY CPI Reading of US, Eurozone and China (rhs) 6% 40% 5% 30% 20% 4% 10% 3% 0% 2% -10% -20% -30% -40% -50% It s worth noting that 0% YoY for the CRB Index corresponds perfectly with +2% for our CPI sample and +2% is a common goal for Price Stability among central banks. 1% 0% -1% -2% Forecasts for the CRB Index assume no change to current prices unless otherwise noted. HEDGEYE 5
INFLATIONARY PRESSURES BUILDING 20.0% CPI COMPS EASE WHILE CAPACITY UTILIZATION, SERVICES INFLATION, WAGE AND CREDIT GROWTH ARE BEGINNING TO BREAKOUT Household Debt, YoY % Private Sector Salaries & Wages, 2Y Ave Capacity Utilization, 2Y Ave (RH Axis) CPI, 2Y Ave CPI: Services less Energy, 2Y Ave 90 15.0% 85 10.0% 80 5.0% 75 0.0% 70-5.0% 65 HEDGEYE 6
1.5x GDP: EASY COMPS VS. HARD COMPS Z-SCORE (TRAILING 3Y) OF SELECTED COMPARATIVE BASE (2Y COMP) FOR THE RESPECTIVE GDP REPORTING PERIOD 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 1.2x 1.0x 0.8x 1.0x 0.7x 0.9x 0.9x 0.9x 0.7x 0.5x 0.4x 0.4x 0.1x 0.2x 0.3x 0.5x 0.5x 0.5x 0.4x 0.4x 0.4x 0.3x 0.3x 0.2x 0.0x -0.5x -0.4x -0.2x -0.5x -0.6x -1.0x -1.5x -0.9x -1.2x -1.2x -1.4x -1.5x -1.5x -1.0x -1.1x -0.9x -0.9x -2.0x China Eurozone Germany Japan United Kingdom United States Data Source: Bloomberg HEDGEYE 7
US: QUADRANT #2 OR #3? HEDGEYE 8
HERE S THE UPDATE
SINCE OUR 1Q THEMES CALL: 1/9/14 106 104 Commodity and Inflation Hedge Assets Are Rising While Consumption Levered Exposure Is Underperforming XLY Equity Thomson Reuters/Jefferies CRB Commodity Index 102 100 98 96 94 92 HEDGEYE 10
COMMODITY INFLATION = RISING 288 Thomson Reuters/Jefferies CRB Commodity Index 286 284 282 280 278 276 274 272 HEDGEYE 11
PRICES PAID = RISING 62 60 ISM Prices 58 56 54 52 50 48 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 HEDGEYE 12
SLOW GROWTH OUTPEFORMING OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT HEDGEYE 13
IN A CHART: SLOPE = WORSE HEDGEYE 14
YIELD SPREAD = COMPRESSING 270 Yield Spread (10Y Treasury Yield less 2Y Yield, Bps) 260 250 240 230 220 210 HEDGEYE 15
ISM MFG NEW ORDERS = SLOWING 20 15 ISM NEW ORDERS M/M CHANGE 10 5 0-5 -10-15 -20 Dec '80, -14.1 Jan '14, -13.2 HEDGEYE 16
ISM SERVICES NEW ORDERS = SLOWING 70 65 60 55 ISM SERVICES: NEW ORDERS 50 45 July '09, 49.7 Dec '13, 49.4 40 35 30 HEDGEYE 17
DURABLE GOODS = SLOWING 20.0% U.S. DURABLE GOODS ORDERS MoM % YoY % 2Y Ave 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 HEDGEYE 18
RETAIL SALES = SLOWING 6.0 ICSC US Retail Chain Store Sales Index SA, YoY % 4 per. Mov. Avg. (ICSC US Retail Chain Store Sales Index SA, YoY %) 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 HEDGEYE 19
CONSUMER TRENDS = SLOWING HEDGEYE 20
HOUSING DEMAND = SLOWING 230 MBA MORTGAGE PURCHASE APPLICATIONS 220 210 200-15% 190 180 170 160 HEDGEYE 21
HOME PRICES = SLOWING 14.0% CORELOGIC HOME PRICE INDEX 12.0% Corelogic HPI, YoY % 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% (2.0%) (4.0%) Jan- 12 Feb- 12 Mar- 12 Apr- 12 May- 12 Jun- 12 Jul-12 Aug- 12 Sep- 12 Oct- 12 Nov- 12 Dec- 12 Jan- 13 Feb- 13 Mar- 13 Apr- 13 May- 13 Jun- 13 Jul-13 Aug- 13 Sep- 13 Oct- 13 Nov- 13 Dec- 13 Jan- 14 HEDGEYE 22
HEDGEYE QUANTITATIVE LEVELS
SPX: BEARISH TREND 1900 1850 HEDGEYE QUANTITATIVE SETUP: S&P500 SPX INDEX TREND = 1784 1800 1750 1700 1650 1600 1550 1500 1450 1400 HEDGEYE 24
VOLATILITY: BULLISH TREND 22 HEDGEYE QUANTITATIVE SETUP: VIX INDEX VIX Index TREND = 14.91 20 18 16 14 12 10 HEDGEYE 25
THE DOLLAR: BEARISH TREND 85 HEDGEYE QUANTITATIVE SETUP: US DOLLAR INDEX DXY Curncy TREND = 81.12 84 83 82 81 80 79 78 HEDGEYE 26
10Y TREASURY: BEARISH TREND 3.10 HEDGEYE QUANTITATIVE SETUP: 10Y TREASURY YIELD 10Y Treasury Yield TREND = 2.80 2.90 2.70 2.50 2.30 2.10 1.90 1.70 1.50 HEDGEYE 27
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