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Initial Claims Fall Sharply - Starting to Get Interesting

Initial Claims Fall Sharply - Starting to Get Interesting

The headline initial claims number fell 24k last week to 457k (22k net of the revision). Rolling claims came in at 446k, a decrease of 10k over the previous week. This significant improvement moved claims near the lows of the year on both the rolling and reported series. There have been five weeks in 2010 where rolling claims fell by 10,000 or more. Today’s report brings the series closer to the 375-400k range we are looking for before unemployment can begin to improve.

 

Initial Claims Fall Sharply - Starting to Get Interesting - 1

 

Initial Claims Fall Sharply - Starting to Get Interesting - 3

 

In the table below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.

 

Initial Claims Fall Sharply - Starting to Get Interesting - 2

 

Joshua Steiner, CFA

 

Allison Kaptur


THE M3: LVS PENALIZED BY SAFE; SO SELLS SHARES; MORE IMPORTED WORKERS; CHINA DATA; HENGQIN

The Macau Metro Monitor, November 10th, 2010

 

LAS VEGAS SANDS: NOTIFIED BY CHINA SAFE OF PRELIMINARY PENALTY OF CNY10.8MLN WSJ

LVS said the State Administration of Foreign Exchange (SAFE) issued a preliminary penalty of US $1.63MM against one of LVS's wholly-owned foreign enterprises in China.  The enterprises "were established to conduct non-gaming marketing activities in China and to create goodwill in China and Macau for the company's operations in Macau."   As disclosed in its 2008 annual report, SAFE had made inquiries and obtained documents relating to payments made by company-owned foreign enterprises to counterparties and other vendors in China.  Also, in its latest 10Q, LVS said that SAFE's decision will become final unless contested.

 

AMBROSE SO SELLING SHARES IN SJM macaubusiness.com

SJM CEO Ambrose So and Executive Director Ng Chi Sing are selling 67MM shares.  They are selling the shares in a price range of HK$11.75-HK$12.25 each, in a deal bookrun by Deutsche Bank AG.


IMPORTED WORKERS CONTINUE TO RISE macaubusiness.com

In September 2010, the total number of non-resident workers in Macau stood at 74,525, up by 806 people MoM.

 

CHINA'S HOME PRICES GROW AT SLOWEST PACE IN 10 MONTHS Xinhua News, BusinessWeek

October home prices in 70 cities climbed 8.6% YoY--the lowest YoY increase this year--and 0.2% MoM.  This missed estimates of 8.9% growth.  Property sales volume dropped 11.2% MoM.


PBOC: TO RAISE RESERVE REQUIREMENT RATIO 50 BPs TUESDAY WSJ

China's central bank said it will raise banks' reserve requirement ratio by 50 bps from Nov 16, the fourth such hike this year.

 

HENGQIN BORDER TARGETING 24-HOUR CROSSING Macau Daily Times, macaubusiness.com

According to Macau govt spokesperson Alexis Tam Chon Weng, The Central Government’s approval of round the clock immigration clearance at the Hengqin checkpoint is expected to be obtained by early 2011.   “Everything is ready right now except the permission from the Central Government,” said Tam.  Expectations are that the scheme will later be extended to the Barrier Gate border.


TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE

Rates Fall and Purchase and Refi Applications Rise

MBA Purchase Applications rose 5.5% WoW in the first week of November. We think the public is finally responding to lower mortgage rates. Zillow reports that 30-Yr mortgage rates hit an all time low of 4.07% last week. We don't yet have Freddie Mac data yet for last week to confirm, however (that comes out tomorrow). Refinance Applications rose 6% to levels near the highs of the year.  For reference, November refinance application volumes are running at 92% of 2003 levels - the all-time high.

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - shark chart

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - shark chart long term

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - refi

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - refi long term

 

 

Initial Claims Fall Sharply - Starting to Get Interesting

The headline initial claims number fell 24k last week to 457k (22k net of the revision). Rolling claims came in at 446k, a decrease of 10k over the previous week. This significant improvement moved claims near the lows of the year on both the rolling and reported series. There have been five weeks in 2010 where rolling claims fell by 10,000 or more. Today’s report brings the series closer to the 375-400k range we are looking for before unemployment can begin to improve.

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - rolling

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - raw

 

Yield Curve Improves WoW - Quarter-to-Date Sequential Now Flat

The following chart shows 2-10 spread by quarter while the chart below that shows the sequential change. The 2-10 spread (a proxy for NIM) has fell dramatically in 2Q and 3Q, but has stabilized thus far in 4Q10. Yesterday’s closing value of 221 bps is up from 216 bps last week.

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - spreads

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - spreads QoQ

 

The table below shows the stock performance of each Financial subsector over four durations. 

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - subsector perf

 

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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RL Quick Take: Knockout Punch

The 2Q11 print of $2.09 compares to our estimate of $1.89, and the Street at $1.71.  It looks relatively clean (in fact the tax rate was on the high side)…though there may be items related to accounting for China and Korea that come out on the conference call. That said, the source of the upside came from US and European wholesale revenue, as well as considerable delevering.  There was even strength across the board as it relates to regions, channels, and products. Handbag line appears to have started on the right foot. E-commerce accelerated AGAIN, and that’s before launching in the UK in October. There was nearly a 400bp delta between reported EBIT margins (+180bps) vs. guidance (-100-150bps).  The icing on the cake from my perspective is that the company stepped up its share repo, which not only was accretive, but also sends the right message to those who bought into Mr. Lauren’s offering 2 quarters ago.

 

What did I not like? As solid as EBIT margins were, the Gross Margin rate was up only 90bp. That’s hardly a number to get freaked out about. But RL does have to deal with cotton costs the same way everyone else does, and that will show up in the RL’s 4Q11 (Mar). On the same token, RL’s sales/inventory spread took nearly a 20 point tumble. Does an inventory build make sense as it relates to launching handbags, Korea, UK e-commerce, and having opened up two major flagships during the quarter – this will explain away much of it. But is it 3pts or 30pts? It’s a question to answer. A massive comforting factor is that they guided to a HIGH-TEENS top line growth rate in 3Q. Find me any other name in this space with those characteristics…

 

All in all, this was a knock-out punch for RL.  

 

RL Quick Take: Knockout Punch - RL S 11 10

 

 


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - November 10, 2010

As we look at today’s set up for the S&P 500, the range is 34 points or -0.94% downside to 1202 and 1.86% upside to 1236.  Equity futures are trading higher following yesterday’s lower close on Wall Street and ahead of key claims data later today. Economic data indicating slowing imports in China triggers concern over the demand outlook, keeping European equities under pressure.

 

Following some market speculation, the Bank of China confirmed it raised the reserve ratio for banks by 50 bps. In MACRO data today we have September Trade Balance and Initial Jobless Claims.

  • Briggs & Stratton (BGG) cut FY 2011 EPS forecast to $1.13-$1.35 from $1.20-$1.40, vs est. $1.29
  • Global Indemnity (GBLI) said it will cut U.S. workforce by 25%, close underperforming facilities
  • Grand Canyon Education (LOPE) reported 3Q EPS 28c vs est. 30c
  • Higher One Holdings (ONE) sees 4Q adj. EPS 12c-14c vs est. 11c
  • Insulet (PODD) raised full-year sales forecast to $95m-$98m vs est. $97.1m
  • Invesco (IVZ): Morgan Stanley said it will sell its $717m stake in 30.9m secondary offering
  • Jamba (JMBA) said it sees 2011 comp. sales up 2%-4%
  • Medidata Solutions (MDSO) reported 3Q adj. EPS 29c vs est. 18c
  • Ngas Resources (NGAS) reported 3Q loss-shr 6c vs est. loss- shr 5c; said it is evaluating options including possible sale
  • Starwood Property Trust (STWD) boosted Q dividend to 40c-shr from 33c-shr, in line with est.; 3Q core EPS beat est.
  • Tesla Motors (TSLA) reported 3Q rev. $31.2m vs est. $28.1m
  • Tennant (TNC) boosted Q dividend to 17c-shr from 14c-shr
  • Weight Watchers International (WTW) boosted full-year EPS forecast to $2.47-$2.52 vs est. $2.47
  • Werner Enterprises (WERN) says it will pay special one-time dividend of $1.60-shr in addition to regular div.

 PERFORMANCE

  • One day: Dow (0.53%), S&P (0.81%), Nasdaq (0.66%), Russell 2000 (1.46%)
  • Month-to-date: Dow +2.05%, S&P +2.55%, Nasdaq +2.22%, Russell +3.22%.
  • Quarter-to-date: Dow +5.18%, S&P +6.33%, Nasdaq +8.21%, Russell +7.38%.
  • Year-to-date: Dow +8.81%, S&P +8.82%, Nasdaq +12.95%, Russell +16.09%
  • Sector Performance: Financials (2.2%), Materials (1.6%), Industrials (0.9%), Consumer Disc (0.9%), Utilities (0.6%), Healthcare (0.5%), Consumer Spls (0.4%), Tech (0.3%), Energy (0.3%), Telecom (0.1%)
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Priceline +8.14%, EQT Corp +5.08% and Range Resources +4.57%/Dean Foods -17.95%, AK Steel -5.50% and HPC Inc. -5.38%.

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -1448 (-1210)  
  • VOLUME: NYSE: 1112.05 (+22.28%)
  • VIX: 19.08 +4.32% - YTD PERFORMANCE: (-11.99%)
  • SPX PUT/CALL RATIO: 1.59 from 1.25 +27.54%  

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 17.00 -0.101 (-0.592%)
  • 3-MONTH T-BILL YIELD: 0.13%
  • YIELD CURVE: 2.26 from 2.19

COMMODITY/GROWTH EXPECTATION:

  • CRB: 319.11 +1.22% - up 9 straight days
  • Oil: 86.72 -0.39% - BULLISH
  • COPPER: 404.30 +2.19% - BULLISH
  • GOLD: 1,422.75 +1.25% - BULLISH

CURRENCIES:

  • EURO: 1.3850 -0.65% - BEARISH - looking to be down for 4 days in a row
  • DOLLAR: 77.443 +0.54%  - BULLISH

OVERSEAS MARKETS:

 

European markets:

  • Markets are trading in the red hit by data that indicated slowing imports in China suggesting the growth is slowing.
  • Basic Resources and Energy sectors are among the worst performers on demand concern.
  • Utilities, Health Care are among the four sectors trading above the gain line.
  • France Sept Industrial production +0.1% m/m vs consensus +0.4%  

Asian markets:

  • Nikkei +1.40%; Hang Seng (0.9%); Shanghai Composite (0.63%)
  • Asian markets were mixed today.
  • On foreign sales figures, carmakers were strong in South Korea, and brokerages joined them on the stock market’s recent steady rise. Korea Exchange Bank rose 2% on results and promising a dividend, but other banks fell on caution before the central bank’s policy decision tomorrow.
  • Technology stocks were also down.
  • Australia reversed early gains, with profit-taking in banks and resource stocks taking the market down.
  • Hong Kong and China fell on concerns that China may raise interest rates after the country reports inflation figures tomorrow. Being particularly rate-sensitive, banks fell 1-2% and property shares dropped 4-5%.
  • Pharmaceuticals rose in China on expectations that their prices will rise after the government told them to increase their quality. In Hong Kong, Bank of China and Bank of Communications lost 3% each, as they were said to have had their reserve requirements raised.
  • China October trade surplus $27.15B vs consensus $26.4B.

Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER



Copycats

“We're all copycats in this league, ... There's nothing new in the NFL.”

-Wade Phillips (recently fired Coach of the Dallas Cowboys)

 

Speak for yourself Wade. That’s not how Bill Belichick thinks about coaching against you. Good luck with your job search.

 

In the New Reality of Google, You Tube, and Twitter, it’s a lot easier to hold professional politicians, athletes, and investors accountable to what comes out of their mouths and when. Amidst the leadership crisis we have in this country, this is critical progress.

 

I wrote a book about this last year (Diary of A Hedge Fund Manager) and my overall conclusion about modern day finance remains. The days of financiers, central bankers, and “economists” being protected by their old boy networks are ending. Opacity is dying on the vine of time and space. The question players in this game will have to answer for the next leg of this industry’s evolution is: what exactly is it that you do?

 

On Monday, rather than have some fan in the cheap seats make up an edited version of the game tape, I showed everyone my short book. Every position; every time stamp; and every gain/loss versus cost basis. Being accountable isn’t rocket science. There’s a reason why a lot of players in this game think like Wade Phillips – they should. Last week was not good for us. This week has been very good. This is the game. It’s constantly changing.

 

Yesterday, one of the fund managers that franchises the Hedgeye strategy sent me an email after the market closed. He was happy. Apparently he was up +0.45% (gross) on the day (the SP500 was down -0.81%). And that made me smile. One of my professional ambitions is to prove that, over time, not everyone loses money on market down days.

 

For transparency purposes, look at a snapshot of the Hedgeye Portfolio today versus Monday. Better than bad, and thank God we stuck to our guns. That’s the only way to outperform in this business, over time.

 

Wade Phillips may not see anything new in the NFL, but that certainly doesn’t mean that new strategies cease to exist. One man’s dogma is another man’s opportunity. That’s what has to get your feet on the floor early every morning to play this game. You have to search for the next big market move with passion.

 

Today, we’re looking at a much different global game of global macro than we were last Thursday. Both the US Dollar and US interest rates are breaking out to the upside.

 

Then:

  1. The Republicans swept the House
  2. The Quantitative Guessing (QG) experiment was squeezing my shorts
  3. The Burning Buck was getting debauched to fresh lows (down -15% since June)

Now:

  1. The Republicans are in the House (yes, they are also professional politicians)
  2. The Quantitative Guessing (QG) experiment = global inflation and the Chinese are raising interest rates
  3. The Burning Buck has found a bid, trading up a full +2.6% off its lows

That makes Hedgeye 17 for 17 on our US Dollar (UUP) calls since we started the firm in 2008. No, that’s not arrogance. That’s just the score. And, unless Hedgeye highlights it, I can assure you that our competition won’t.

 

The last time we were long the US Dollar was in Q1 of this year (our Macro Theme was called “Buck Breakout”) when we made a very bearish call on European sovereign debt called the “Sovereign Debt Dichotomy” (which outlines the theme that sovereign debt issues will exist for the next 3-5 years, but you’ll need to manage risk around positions in a Duration Agnostic way).

 

Yes, sometimes it’s that simple. After all, finding the deep simplicity of the macro matter is the definition of Chaos Theory. Being bullish on the US Dollar simply requires getting Bearish Enough on the Euro at the right time. One is a basket of the other and this morning you are seeing the Euro (which we are short via the FXE), break down through what we call out immediate term TRADE line of support at $1.39.

 

My opponents don’t like this morning’s reminders. But that’s cool. I wasn’t the most likable player on the ice either. Without consensus what would I do during the day? No matter where “they” go, or who “they” are, I’m not going anywhere anytime soon. Neither is the massive correlation risk associated with the following breakouts we are seeing in US interest rates this morning:

  1. 2-year US Treasury yields breaking out above my immediate term TRADE line of resistance = 0.37%
  2. 10-year US Treasury yields breaking out above my immediate term TRADE line of resistance = 2.54%
  3. 30-year US Treasury yields holding above what’s been an obvious breakout since mid-October (support = 3.86%)

Then and now… different durations… multiple countries … multiple factors… it’s all part of this giant game of Chaos Theory that ultimately results in interconnected global macro market risk. I don’t suspect Wade Phillips could see this coming until it was too late either.

 

My immediate term support and resistance lines for the SP500 are now 1202 and 1236, respectively. We continue to hold an 18% position in the Chinese Yuan (CYB) in the Hedgeye Asset Allocation Model and it’s hitting its highest levels since 1993 this morning as the Chinese tighten the screws on what was Bernanke’s Burning Buck.

 

We’ll be hosting a conference call with Peter Orszag, former Director of the Office of Management and Budget (OMB), today at 1PM EST. For qualified institutional investors, please email .

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Copycats - yields


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