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INITIAL JOBLESS CLAIMS DROP 41K

The headline initial claims number fell 41k WoW to 404k (37k after a 4k downward revision to last week’s data).  Rolling claims fell 4.5k to 411.5k. On a non-seasonally-adjusted basis, reported claims fell 212.5k WoW.  As the third chart below shows, claims usually fall sequentially in this week of the year.

 

We continue to remind investors that based on our analysis of past cycles, the unemployment rate won't improve until we see claims move into the 375-400k range. That said, it is worth highlighting an important caveat. This recession has been different in that it has pushed the labor force participation rate down by ~200 bps, which has had a correspondingly positive improvement on the unemployment rate. In other words, the unemployment rate isn't really 9.4%, it's 11.4%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11.4% actual rate as opposed to the 9.4% reported rate.

 

INITIAL JOBLESS CLAIMS DROP 41K - 1

 

INITIAL JOBLESS CLAIMS DROP 41K - 2

 

INITIAL JOBLESS CLAIMS DROP 41K - 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 JOBLESS CLAIMS DROP 41K - 4

 

Joshua Steiner, CFA

 

Allison Kaptur


THE M3: CHANGHI DEC RESULTS; RESORTS WORLD; VISITATION; CHINESE LENDING

The Macau Metro Monitor, January 20, 2011


DECEMBER PASSENGER DATA Changhi Airport Group

The number of passengers arriving into Singapore's Changhi airport rose 6.0% to 4,063,874 in December. Even though it is a new monthly record, it is a sequential slowdown from November's 7.7% YoY growth in number of passengers.

 

RESORTS WORLD SET TO BUY SINGAPORE TECH BUILDING Business Times 

Singapore Technologies is said to be close to selling its office block in the Tanjong Pagar area for nearly $150 million to Resorts World at Sentosa Pte Ltd--nearly $1,500 per square foot on the current net lettable area (NLA) of 98,906 sq ft.  Tanjong Pagar is slated to be transformed into a new bustling waterfront district after the container terminals in the vicinity eventually move out.

 

MORE VISITORS, MORE MONEY, MORE WISHING Intelligence Macau

Tourism chief Joao Manuel Costa Antunes, Director of the Macau Government Tourist Office, says his conservative forecast for Macau visitation is 10% growth.  IM believes the 10% target is not conservative but more realistic.

For visitation to reach double-digit growth rates, IM says Lot 5&6 needs to get back on track and a short timeline is needed for Wynn, SJM and MGM Cotai projects.  They think it's wishful thinking.

 

CHINESE BANKS LENT OUT RMB 1 TRILLION 21st Century Herald

According to sources, Chinese banks lent out more than RMB 1 trillion by Jan. 19.  The report comes even as Chinese Premier Wen Jiabao said yesterday that his government will work to avoid "abnormal" loan growth during the current quarter.  Chinese banks tend to front-load their lending during the year to earn more interest income, so January and Q1 are usually the peak lending periods.  In January 2010, lending stood at RMB 1.39 trillion, by far the highest total of any month during the year.  In addition, China Development Bank had stopped lending for the rest of the month, having reached its quota.



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INITIAL JOBLESS CLAIMS DROP 41K

The headline initial claims number fell 41k WoW to 404k (37k after a 4k downward revision to last week’s data).  Rolling claims fell 4.5k to 411.5k. On a non-seasonally-adjusted basis, reported claims fell 212.5k WoW.  As the third chart below shows, claims usually fall sequentially in this week of the year.

 

We continue to remind investors that based on our analysis of past cycles, the unemployment rate won't improve until we see claims move into the 375-400k range. That said, it is worth highlighting an important caveat. This recession has been different in that it has pushed the labor force participation rate down by ~200 bps, which has had a correspondingly positive improvement on the unemployment rate. In other words, the unemployment rate isn't really 9.4%, it's 11.4%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11.4% actual rate as opposed to the 9.4% reported rate.

 

INITIAL JOBLESS CLAIMS DROP 41K - rolling

 

INITIAL JOBLESS CLAIMS DROP 41K - raw

 

INITIAL JOBLESS CLAIMS DROP 41K - claims NSA

 

Yield Curve

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 1Q is tracking 38 bps wider than 4Q.  The current level of 277 bps is flat versus last week.

 

INITIAL JOBLESS CLAIMS DROP 41K - spreads

 

INITIAL JOBLESS CLAIMS DROP 41K - spreads QoQ

 

Financial Subsector Performance

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

 

INITIAL JOBLESS CLAIMS DROP 41K - subsector perf

 

 

 

Joshua Steiner, CFA

 

Allison Kaptur


TALES OF THE TAPE: MCD, WEN, EAT, CHUX, PFCB, BJRI, RT, SONC, COSI

Some interesting news items and price action over the last 24 hours.

  • MCD will introduce a fourth Angus burger flavor on February 1st MCD: the Chipotle Angus Third Pounder.  The newest member of the Angus Third Pounder line will not only come in sandwich form, but also in the not-as-good Snack Wrap form (but only for a limited time). 

Hedgeye Thought: MCD need to be more focused on burgers.  A few years from now, after month over month of flat same store sales, someone in Oak Brook will come up with the idea of simplifying the McDonald's menu to make the operation more efficient and faster. This person will be hailed as a “genius and a visionary”

  • WEN management today announced that it is exploring strategic alternatives for Arby’s restaurant group.  Nelson Peltz, Chairman of Wendy’s/Arby’s Group, said, “We believe the way to maximize shareholder value is to focus all of our management and financial resources on continuing to build the Wendy’s brand.”

Hedgeye thought - But I thought putting the two brands under one roof was the best way to maximize shareholder value?

  • Casual dining (EAT, CHUX, PFCB BJRI and RT) down on accelerating volume.

Hedgeye thought - December and January sales have slowed and the weather continues to have an impact in January.  The biggest losers are the chains with a heavy concentration in the southeast. 

  • SONC declined on accelerating volume. CEO Hudson Clifford acquired common stock earlier this month.
  • COSI underperformed yesterday on accelerating volume.  I remain positive on this stock as management continues their shrink-to-grow strategy.

TALES OF THE TAPE: MCD, WEN, EAT, CHUX, PFCB, BJRI, RT, SONC, COSI - stocks 120

 

Howard Penney

Managing Director


Tales from Tunisia

“The darkest thing about Africa has been our ignorance of it.”

-George Kimble

 

Tunisia is the northernmost nation in Africa.  This African outpost of some 64,000 square miles and 10.3 million people is bordered by Algeria to the west, Libya to the southeast, and the Mediterranean Sea to the north and east.  While religious freedom is widely practiced in Algeria, the Tunisian Constitution declares Islam as the official state religion.

 

By global economic standards, Tunisia’s economy is not meaningful.  The nation’s GDP is ~$43.8BN (official exchange rate), which is about 1/8th of the market cap of Apple (currently there are no Apple stores in Tunisia).   The Tunisian labor force is split by occupation as follows: 18% agriculture, 32% industry, 50% services.  Currently that labor force is unemployed to a tune of 14%.  Coincident with this unemployment is rising inflation (CPI from 2009 to 2010 accelerated from 3.5% to 4.5%) and slowing growth (GDP from 2008 to 2010 slowed from 4.6% to 3.4%).  At Hedgeye, we call this Jobless Stagflation.

 

In the West, endemic Jobless Stagflation is fought by the populous at the polls, as we saw in our most recent midterms in the United States.  In nations like Tunisia, the populous often uses other methods:    most recently it was massive rioting and protests, which began on December 17th with the self-immolation of Mohammed Bouazizi (after police confiscated his unlicensed food stand) and ended on January 14th with current President Ben Ali fleeing the country for Saudi Arabia.

 

It seems that the people have spoken in Tunisia.  Now this could just be a Tale from Tunisia, or it could be an emerging Tail Risk from TunisiaOnly time will tell whether the so-called Jasmine Revolution becomes a key export of Tunisia, but there are many nations in the Middle East and Africa with similar characteristics - primarily Muslim, governed by a dictatorial family, slowing growth, rising inflation, high unemployment, and a young population. 

 

The last point on age is likely a key one.  In Tunisia, over half of the population is younger than 25 years of age.  Across the Middle East and North Africa, we see similar demographic patterns.  In demographic circles, this is called the “youth bulge”.  As healthcare broadly improved in these regions in the late 1960s, birth rates went up dramatically.  Currently, it is estimated that around 65% of the regional population is under the age of 30.  This is not a cohort that likes to be unemployed, appreciates costs of living rising exponentially, and, as evidenced by The Jasmine Revolution, is willing to stand idle while their leaders do them harm.

 

Ultimately, this revolution could start and end in Tunisia, and be of no greater impact, but there is certainly potential for much more, and as risk managers “the darkest” thing we could do is show “ignorance” of these facts. 

 

In the United States last night, we saw evidence of our most recent Democratic revolution.   In winning more than 60 seats in the recent midterms, the Republicans have certainly been acting like they have a mandate (even though we view that election as a repudiation of incumbency as much as anything).  Last night, as Keith noted in an email, “it began” with a vote on healthcare.  The House voted 245 – 189 to pass a bill to repeal President Obama’s health care plan.  Not surprisingly, the vote was unanimously supported by Republicans and the backlash from Democratic lawmakers was instant and aggressive.  The most noteworthy comment was from Representative Steve Cohen (D-Tenn), who said:

 

“They say it’s a government takeover of health care, a big lie just like Goebbels.”

 

It is likely no surprise that the US dollar is trading down on this news, with comments like Cohen’s, but also more broadly, as my colleague Tom Tobin noted this morning, “talking doesn’t get the job done.”  The new Republican majority in the House has aggressively gone after the Obama agenda, but in order for the dollar to respond favorably our elected representatives will have to do more than talk on the key economic issues facing the nation (namely the debt and deficit). 

 

On a more positive note, today at 1pm EST our Energy Sector Head Lou Gagliardi will be hosting a conference call on one of our most favorite long term investment regions, the Canadian Oil Sands.  His discussion is titled, “Digging Deep and Powering through the Canadian Oil Sands.”  Lou and his team have put together a 60+ page presentation that highlights the key attributes of the incredibly long term asset in Canada, with a focus on some of his best ideas in the region.  If you are looking for cheap ways to play energy and are a qualified institutional prospect, please email us at sales@hedgeye.com to join the call today.

 

Yours in risk management,

Daryl G. Jones

 

Tales from Tunisia - 3


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