A Big GDP Forecast, 2,000,000 for a “fixer upper” in Australia and lots of Private Equity money
By Jeff Kelly on July 28, 2017
When we have a week like the one just passed I often wonder what my Mom would have thought about our leader’s actions. My Mom was always worried about her son’s language. Cursing always required getting your mouth washed out with soap. Lying was treated pretty harshly as well. You had to go out into the backyard and select a “switch” from a berry bush. This was an exercise in discipline but also tactical thinking. If you selected to small a switch, my Mom went out and picked one. But you also didn’t want to select one too large, cause well, it hurt! You needed to think and make a good decision.
There’s a few in the Administration who could use their mouth getting washed out with soap. I think it would be instructive to have the entire Executive and Congressional Branches select some switches from a berry bush. I think all are too far gone to really make any behavioral changes but it might be fun to see a few of the Congressional folks get a switching!
While the circus in Washington continues, the economy does as well. The data, earnings and sales continue to be very good. We expect the next 60 days to show some seasonal weakness. This weakness will fall prey to the acceleration in revenue and earnings coming in the 3rd and 4th quarters. A look at some charts and stories from the week past.
Sales continue to come in well ahead of expectations.
Hedgeye’s Third Quarter GDP forecast-They aren’t kidding.
No, that five-handle forecast for headline GDP in the third quarter is not a typo. It’s actually the number you arrive at in the process of transforming the level of real GDP implied by the predicted year-over-year growth rate – which itself is the primary focus of our forecasting process.
Do we have confidence in that estimate? Certainly not in the context of having little-to-no reported data for the third quarter or any actual comparative base upon which to forecast. But in the context of having an average absolute forecast error of +26 basis points on our year-over-year estimates (trailing 5Y), we can be reasonably confident that third quarter GDP is likely to come in above +4.02% assuming reasonable downside to +2.50% year-over-year from our baseline forecast.
Who really cares if third quarter GDP comes in at +4% or +5%? The key takeaway is that it’s a lot higher than where we started the year off (at a lowly +1.4%).
Chart from Hedgeye.
If Hedgeye is right in the above forecast, the cartoon below is appropriate.
The important Intermodal traffic is up nicely on all 4 time frames. Great economic news.
Total US Rail Traffic
| Major Commodity Groups | Total | Grain | Chemicals | Food | Forest | Metals | Coal | Autos | Intermodal |
| Current Week | |||||||||
| Vs. 2016 | 1.1% | (15.4%) | (3.2%) | (11.3%) | 1.9% | (3.2%) | 5.3% | (13.2%) | 4.1% |
| Vs. 2015 | (4.2%) | (7.9%) | (10.2%) | (10.3%) | (8.0%) | (2.2%) | (15.0%) | (25.2%) | 2.3% |
| 4 Week Rolling Avg. | |||||||||
| Vs. 2016 | 2.6% | (9.0%) | (3.3%) | (4.3%) | 0.6% | (1.8%) | 5.9% | (12.3%) | 4.9% |
| Vs. 2015 | (3.5%) | 6.3% | (9.3%) | (5.6%) | (8.5%) | (2.7%) | (11.2%) | (14.5%) | (0.8%) |
| Quarter to Date | |||||||||
| Vs. 2016 | 2.4% | (12.7%) | (3.1%) | (3.2%) | 1.4% | (2.7%) | 4.5% | (12.5%) | 5.2% |
| Vs. 2015 | (7.0%) | (0.2%) | (10.5%) | (8.7%) | (10.7%) | (6.4%) | (15.7%) | (23.2%) | (3.6%) |
| Year to Date | |||||||||
| Vs. 2016 | 4.3% | 7.7% | (3.7%) | (1.2%) | (1.8%) | 3.0% | 16.4% | (6.1%) | 2.9% |
| Vs. 2015 | (3.6%) | 8.8% | (9.1%) | (4.9%) | (9.1%) | (1.3%) | (17.7%) | (3.0%) | 0.0% |
Table from Railfax.
Apollo raises 24.6 Billion for new buyout fund. Private equity fundraising in the second quarter reached $121 billion. This money is always levered up, often at a 10-1 ratio. Fuel for the equity markets.
St. Louis Fed Financial Stress Index at levels where it bottomed in the past.
While the Fed has been tightening, raising interest rates, financial conditions have gotten easier. Go figure.
I thought Sinatra’s widow was great too, but I don’t think we needed to retaliate with a warning shot at Iran! Should have fired at the Russians…
Swedes not really looking to pay down the mortgage.
The amount of energy used by Bitcoin Miners is staggering. Chart from Morgan Stanley.
We’ve heard a great deal lately about artificial intelligence, machine learning and robots taking jobs. The Time Magazine cover below is from December 8, 1980. So maybe it’s different this time and maybe its not.
A soldier lays to rest his pup, Cena. A bomb detection dog. Cena served from 2009-2014 in Afghanistan. They served together and were reunited when she came home to save him again, this time from PTSD.
“Every Marine has to go out in a set of dress blues,” DeYoung told Fox 2 Detroit. “That’s just the way we are. He’s got his ribbons, he’s got his decorations, he’s dressed to the nines. He got a fresh grooming service today and we are ready to make peace with what we have to do.”
http://taskandpurpose.com/marine-dog-cena-received-heros-farewell-hundreds-hometown/amp/
A nice 2,000,000 fixer upper in Australia. No bubble there!
Palestinian authority raises Terrorist salaries by 13%. Unbelievable.
http://www.thetower.org/5234-palestinian-authority-increases-salaries-to-terrorists-by-13-in-2017/
Lots of great, positive things going on in the world. I’m trying to focus on those. Football teams have reported for training camp so there is that to look forward to. I hope you have a terrific weekend.
Jeff
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