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INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K

Initial Claims Fall 6k (10k net of revision)

The headline initial claims number fell 6k WoW to 382k (10k after a 4k upward revision to last week’s data).  Rolling claims fell 6k to 389k. On a non-seasonally-adjusted basis, reported claims fell 4k WoW. 

 

We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve. We consider unemployment to be ~200 bps higher than the headline rate due to decreases in the labor force participation rate. In other words, if the labor force participation rate were at the long-term average level of the last decade, unemployment rate would be 10.8% rather than 8.8%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 10.8% actual rate.

 

Our healthcare team has done substantial work on unemployment by age, and we include one of their charts below.  The bottom line is that most of the improvement in unemployment has gone to the 55-64 year old demographic and the 20-34 demographic, while the middle aged demographic has yet to see employment growth. 

 

 INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - rolling

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - reported

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - nsa

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - Employment by Age

 

One of our astute clients pointed out the relationship between the S&P and initial claims shown below.  We show the two series in the following chart, with initial claims inverted on the left axis.

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - sp

 

Yield Curve Widens Slightly 

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 1Q is tracking 35 bps wider than 4Q.  The current level of 271 bps is slightly wider than last week (266 bps).

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - spreads

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - spreads QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. We have adjusted our durations to show a different snapshot than we were previously.

 

INITIAL CLAIMS FALL 6K, REMAIN SLIGHTLY BELOW 400K - perf

 

 

Joshua Steiner, CFA

 

Allison Kaptur


THE M3: SITES 5 & 6; CHING MING TOURISTS; MGM IPO; GRAND WALDO MALL; SMOKING BILL; FUEL SURCHARGE

The Macau Metro Monitor, April 7, 2011



SANDS NEEDS 7,000 WORKERS FOR PARCELS FIVE AND SIX macaubusiness.com

Edward Tracy, Sands China’s president and COO, says the company will need 7,000 new workers to run Sites 5 & 6.

 

FEWER TOURISTS ON CHING MING FESTIVAL HOLIDAYS macaubusiness.com

According to official data, 304,000 tourists entered Macau over the Ching Ming festival holidays (April 3 to April 5), representing a 5.61% YoY decline.

 

MGM IPO DEADLINE UNCONFIRMED Macau Daily Times

“We were surprised to read the recent reports, as we don’t have any new information regarding the listing or deadlines. We are still waiting [for a decision],” a MGM’s spokesperson said.

 

FIRST OUTLET MALL TO OPEN AT GRAND WALDO Macau Daily Times

Grand Waldo will be opening Macau's first outlet mall in 3Q.  The Cotai resort said it will be the first casino/entertainment resort in Macau specifically targeting Taiwanese tourists, particularly mid-level consumers.  According to the major shareholder, Get Nice Holdings, a HKD 200MM investment will be required for the redevelopment of Grand Waldo. Get Nice added that intensified competition in the VIP market has shifted Grand Waldo's focus to families/young tourists.

 

Get Nice also mentioned the possibility of building high-end serviced apartments which can be built and sold on a strata-title basis, as part of the Grand Waldo resort.  Grand Waldo sits on freely transferable long leasehold land, unlike other major casino sites that were Government granted for gaming development and cannot be sold forward.

 

SMOKING BAN BILL TO BE ENACTED IN JANUARY 2012 Macau Daily Times

President of the Legislative Assembly's second standing committee, Chan Chak Mo, said he is confident the smoking ban bill will get final approval during April and that it will be effective starting in January 2012.  This means, one year later in January 2013, casinos will be required to set aside dedicated smoking areas of up to 50% of their total public area.  The Government will enforce the law by examining the casinos every three years.

 

FUEL SURCHARGES RAISED ON FLIGHTS FROM MAINLAND TO HK, MACAU People's Daily

According to Ctrip.com, Air China, China Southern Airlines and other major Chinese airlines have raised the fuel surcharge on flights between Chinese mainland and the HK/MSAR.  Air China and China Southern increased surcharges on flights from the mainland to Hong Kong from 140 yuan to 164 yuan on April 1. 

 

Previously, several airlines, including Dragonair, Cathay Pacific Airways and Shenzhen Airlines had already raised fuel surcharges on flights between Chinese mainland and Hong Kong as well as Macau.


TALES OF THE TAPE: RT, EAT, PNRA, YUM, RUTH

Notable news items and price action from the past twenty-four hours.

  • RT reported a disastrous quarter AMC.  The stock traded down on accelerating volume during yesterday’s session is trading at $11.80 pre-market from yesterday’s close of $13.37.  See my note, published earlier this morning, for more details.  Most of the issues are RT specific but the group could trade lower today.  I like EAT on any RT-related weakness.
  • PNRA declined 3.7% on accelerating volume. OTR Global has a “Mixed” read on Panera Bread, deteriorating from “Positive” in December.
  • Japanese restaurants in India scrambled Wednesday to find replacement ingredients after the government imposed a blanket ban on food imports from Japan over radiation fears.
  • From this month KFC will use high oleic rapeseed oil at its 800 outlets in UK and Ireland, at an estimated cost of £1m a year. The move will cut levels of saturated fat in its chicken by 25 per cent, according to the company.
  • RUTH traded up nicely yesterday on accelerating volume – Hedgeye remains positive.
  • YUM traded higher on accelerating volume.

 

TALES OF THE TAPE: RT, EAT, PNRA, YUM, RUTH - stocks 47

 

Howard Penney

Managing Director

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - April 7, 2011

 

Dear Ben: Call Glen because a hawkish policy works! - from Bloomberg news “Australia Adds 37,800 Jobs in March, Sending Currency to Highest on Record.”  As we look at today’s set up for the S&P 500, the range is 17 points or -0.79% downside to 1325 and 0.48% upside to 1342.

 

SECTOR AND GLOBAL PERFORMANCE

 

We are on day 4 of perfect with 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.    

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING GLOBAL

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING GLOBAL

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 420 (+95)  
  • VOLUME: NYSE 885.55 (+6.61%)
  • VIX:  16.90 -2.87% YTD PERFORMANCE: -4.79%
  • SPX PUT/CALL RATIO: 1.69 from 2.15 (-21.10%)

CREDIT/ECONOMIC MARKET LOOK:

 

Treasury 10-year yields little changed at 3.56%, adding 10 bps this week on speculation Fed may raise rates earlier than expected; bonds started day weaker. 

  • TED SPREAD: 24.70 +1.014 (4.282%)
  • 3-MONTH T-BILL YIELD: 0.06% -0.01%
  • 10-Year: 3.56 from 3.50
  • YIELD CURVE: 1.49 from 1.69

MACRO DATA POINTS:

  • 8:20 a.m.: Fed’s Lacker speaks in Roanoke
  • 8:30 a.m.: Jobless claims, est. 385k, prior 388k
  • 8:30 a.m.: Net export sales
  • 9:45 a.m.: Bloomberg Consumer Comfort, prior (-46.9)
  • 10:30 a.m.: EIA Natural Gas, est. (-52), prior 12
  • 3 p.m.: Consumer Credit, est. $4.6b 

WHAT TO WATCH:

  • Citigroup Inc. (C), the third-largest U.S. bank by assets, is seeking to expand its commodity investment-product team by a third over the next two years to tap growing demand as copper, gold and cotton rise to records. 
  • Energy companies prepare to fight Alberta over its plans to revoke their oil-sands leases - Globe and Mail
  • Bullish sentiment among individual investors rose to 43.6% this week, highest since week of Feb. 17
  • Portugal rescue package is likely to be €75B-€90B -- Dow Jones, citing sources
  • GE to Build Biggest U.S. Solar Panel Plant, N.Y. Times Reports
  • Cleveland Fed President Sandra Pianalto said that the continuation of the Fed’s current monetary policy is warranted and that she favors a public inflation target.

 

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • World Food Prices Seen Rebounding to Record After Grains Rally, UN Says
  • Cotton Surges by Exchange Limit on Concern U.S. Stockpiles Might Shrink
  • Copper Gains for Third Day as Rio Fuels Speculation on China Demand's Pace
  • Brent Crude Oil Futures Halt Five-Day Advance in London on Demand Concern
  • Wheat Advances as Dry Weather in U.S. Great Plains May Reduce Production
  • Gold, Near Record, May Advance on Concern About European Debts, Inflation
  • Coffee Rises as Export Shipments May Start to Slow; Sugar Prices Advance
  • Corn Seen Outperforming Wheat, Soybeans, Cotton as China Doubles Imports
  • Diversified Commodity ETPs Got Record $5.2 Billion Inflows in 1st Quarter
  • Shipping Rates for Coal Cargoes to Japan Seen Rising 55%: Freight Markets
  • Gasoline Demand at Eight-Year Low May Threaten 2011 Rally: Energy Markets
  • Ethanol Makers Say Libya War Boosts Profits, Concern U.S. Subsidies to End

CURRENCIES

  • British pound traded near two-week high vs dollar before BoE’s interest-rate announcement

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • Europe rises as Portugal seeks bailout and before ECB is forecast to raise interest rates 25bp.
  • Germany Feb Industrial output +1.6% m/m vs consensus +0.50% and prior revised to +2.00% from +1.80%

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIA PACIFIC MARKTES:

  • Asian stocks are little changed as Bank of Japan keeps credit program, asset-purchase fund unchanged.
  • Australian Job Growth in March Sends Currency to Record High
  • China benchmark index reaches 5-month high
  • Japan was flat after two days of losses.
  • Japan March foreign reserves $1.11T, +$24.54B m/m. Overnight call rate left unchanged at 0-0.1%. Australia March employment +37,800 vs consensus +22K. March unemployment 4.9% vs cons 5.0%.

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 47

 

 

Howard Penney

Managing Director


CHART OF THE DAY: Institutionalized Performance Chasing Creates Market Risk

 

 

CHART OF THE DAY: Institutionalized Performance Chasing Creates Market Risk -  chart


Charming Bears

“I bear a charmed life.”

-William Shakespeare

 

How bearish are you? I know I’m bearish at a price, but I don’t think I am Bearish Enough. Some people on the Street might say they are bearish – but unless they run their own firm, I highly doubt they are bearishly positioned.

 

When I say Bearish Enough, I don’t mean whatever being “underweight” means. I mean having either 50-75% of your assets in cash and/or running with a net exposure of -20-30% net short. Those are not consensus positions. Neither, in most cases, are they allowed.

 

Does the market owe us a return? Do we have to chase yield? Or is this the biggest failure that hasn’t yet been realized by the institutionalization of our industry that’s coming down the pike – Too Big To Perform?

 

These are serious questions associated with a serious problem that has not been fixed alongside this +98% two-year inflation of the US stock market. When I started in the hedge fund business 12 years ago, the correlation of returns between funds was approximately 0.3-0.4. We made money in down markets (2000-2002). We didn’t whine. Since 2007, returns have reverted to the mutual fund industry’s 0.7-0.8. That’s a problem. It’s called over-supply.

 

In his illuminating interview with CNBC earlier this week, hedge fund pioneer Michael Steinhardt made this point in a way that only a man (without a boss) who has been in the hedge fund business since 1967 could - “it aint an elite business anymore.”

 

How charming…

 

No matter where you go this morning, there it is  - a massively understated correlation risk to global markets – the risk of everyone doing the same thing … at the same time…

 

Qualitatively, anyone who has managed real-time market risk prior to 2008 gets this. Quantitatively, for those of you who are new to this globally interconnected game of risk, here is some data to chew on this morning:

  1. Hedge fund net leverage in February 2011 hit its highest level since October 2007 (the last market top)
  2. Hedge fund net-long exposure to Commodities has eclipsed the prior 2007-2008 peak in 2011 (special thanks to The Bernank)
  3. Institutional Investor’s Bullish-to-Bearish weekly survey just tanked to one of its lowest Bearish readings ever

When we talk about ever, no matter whether it is in terms of leverage, asset class concentration, or net exposure, we think of ever as a very long time. I’m obviously in the business of getting paid by the industry, so I have no compensation incentive to walk you through this over-supply problem other than being right.

 

When I think about an investment and/or risk management idea (they aren’t the same things), my team’s baseline model has 3-factors: Supply, Demand, and Price (I learned that running a grass cutting business in Thunder Bay, not at Yale). Using that simple framework, this over-supply call and its related risks to market prices is a trivial one to grasp.

 

That said, as a practical matter, it’s not always easy to hedge this industry’s oversupply/correlation exposure in your portfolio. However, not having an easy answer to a big problem doesn’t mean that the underlying risk associated with that problem ceases to exist. Remember, the market doesn’t owe us anything. That’s why markets crash.

 

I’m not calling for a crash this morning, but I am explicitly flashing amber lights. I called for a correction and the heightening probability of a crash in mid-February – and I got both. The 6.5% correction came in US Equities. The crash came in Japan.

 

Now before you jump out of your screen at me on Japan – don’t worry, I get it - natural disasters aren’t things that you can “make calls” on. However, what you can do, from a risk management process perspective, is make calls on the increasing or decreasing probabilities that a person, company, or country is putting itself in to crash. Anyone want to be levered long of Charlie Sheen because he’s going up?

 

That’s been the slow moving train wreck associated with 1,000,000,000,000,000 YEN in Japanese sovereign debt (that’s what a quadrillion looks like in real-life). That’s Portugal this morning. That’s a debt-financed-deficit movie coming to an American theatre near you.

 

Everyone knows this now. That’s progress. Not everyone is allowed to be positioned for it. That’s risk.

 

I have a 27-factor Global Macro risk management model that dynamically re-weights for real-time market price, correlation, and volatility risks. I can show you the heat that’s associated with seeing what I see – it’s right here on my screen. If you want to shrug it off because you don’t understand it – that’s cool. I didn’t in Q2 of 2008 when I went to 96% cash. And I sure as heck won’t now. I started this firm so that I could be allowed to make these calls.

 

The most important question I need to ask myself on the way to my danger zone SP500 price level of 1, is why am I only in 43% cash today?

 

The last time I signaled this risk (February 14th, 2011), weekly sentiment on the Bear side of the II Bullish/Bearish survey had dropped -31% in a week to register a reading of 18% (in other words, only 18% of the pros in the survey admitted they were bearish in mid-February). Three weeks later, the SP500 lost -6.39% of its price inflation.

 

This week’s drop in weekly Bear sentiment (week-over-week) was -32%. Only 15.7% of the Bears are left. How charming…

 

My immediate-term support and resistance levels for oil are now $106.16 and $110.98, respectively. My immediate-term support and resistance levels for the SP500 are now 1325 and 1342, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Charming Bears - Chart of the Day

 

Charming Bears - Virtual Portfolio


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