prev

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser.    

 

Initial Claims Give Back Some of the Gains

Initial claims rose 10k last week to 401k (+6k net of the upward revision to the prior week).  This is a partial retracement of the prior week's 32k decline.  Quarter-end generally involves significant seasonality, and the Department of Labor noted last week that technical factors related to seasonal adjustment fueled the decline.  

 

Challenger announced job cuts, out earlier this week, paint a very negative picture for initial claims going forward.  Job cuts rose to 115,730, up 211% YoY.  These job cuts will flow through initial claims over the coming months.  

 

Bigger picture, monetary stimulus has had a tight correlation to improving initial claims. The lack of further easing from the Fed means that this tailwind is now gone.  With further fiscal stimulus also off the table, we expect that initial claims will reflect growing weakness.  

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - rolling

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - raw

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - nsa

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - announced job cuts

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - sp

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - fed

 

2-10 Spread Remains a Headwind

The current rate environment remains very difficult for bank margins. The 2-10 spread tightened 11 bps in the last week to 162 bps.  

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - 2 10 Yield Spread

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - 2 10 Sequential Change

 

Subsector Performance

The table below shows the performance of financial subsectors over various durations.

 

JOBLESS CLAIMS RISE, THOUGH BY LESS THAN EXPECTED - Subsector Performance

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Having trouble viewing the charts in this email?  Please click the link below to view in your browser.  


THE HBM: CMG, RT, PFCB

THE HEDGEYE BREAKFAST MONITOR

 

MACRO

 

Employment

 

Initial jobless claims came in at 401k vs expectations of 410k and last week’s revised 395k.

 

THE HBM: CMG, RT, PFCB - initial claims

 

 

SUBSECTOR PERFORMANCE

 

The continuing decline in corn prices is fueling the outperformance of the food processor stocks.

 

THE HBM: CMG, RT, PFCB - subsector fbr

 

 

QUICK SERVICE

 

CMG: Chipotle Mexican Grill was downgraded to Market Perform by William Blair and also to Sell by Miller Tabek. 

 

 

CASUAL DINING

 

RT: Ruby Tuesday is down 12% premarket after announcing poor 1QFY12 earnings last night.  EPS was in line with expectations at $0.05 but company-operated same-store sales decline -4.1% versus expectations of -2.1%.  The company said it now expects EPS for FY12 earnings to be 60 to 75 cents versus the street at 75 cents.  Management highlighted the “aggressive competitive promotional environment with heavy advertising levels”.   We believe EAT is causing RT some problems.

 

THE HBM: CMG, RT, PFCB - RT POD1

 

 

PFCB: P.F. Chang’s was downgraded to Market Perform by William Blair. 

 

THE HBM: CMG, RT, PFCB - stocks 106

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE M3: ANGELA LEONG COMMENTS; GOLDEN WEEK; NON-GAMING

The Macau Metro Monitor, October 6, 2011

 

 

SJM CALLS FOR RELAXATION ON IMPORTED LABORS Jornal do Cidadao

Angela Leong, Managing Director of SJM Holdings suggested that the Macau government should relax labor controls for service, hotel and retail industries to facilitate the gaming sector to employ more local talents, and to introduce sound labor policies and organize training for locals to support Macau’s future development.  She added that the lift of casino entry age to 21 will forbid some young people from working in casinos, which might be unfair to them.

 

In response to reports that Stanley Ho has sold all his stakes in SJM Holdings, Angela Leong said she often increased stakes in SJM, reflecting her confidence in the gaming operator and the industry. She revealed that SJM is waiting for the government's approval of its Cotai project and she expects the construction of the project to start next year.

 

GOLDEN WEEK HOLIDAY ATTRACTS FEWER TOUR GROUPS Macau Daily News

Tourist industry insider says fewer tour groups visited Macau during National Day holiday as compared with last year due to expensive hotel rooms and higher costs of tour groups.  The cost of traveling to Macau has increased.

 

NUMBER OF MAINLAND TOURIST ARRIVALS IN GOLDEN WEEK Macau Daily News

Over 130,000 mainland tourists border crossing were recorded by the Zhuhai authority at three ports at the Zhuhai‐Macau border on the third day of the National Day holidays.  Over 420,000 mainland tourists were on vacation in Macau in the first three days of the Golden Week holiday. 

 

ALLOCATION OF GAMING TABLES BASED ON NON-GAMING ELEMENTS Macau Daily News

Secretary Tam says that the government will use gaming table quota as an incentive to encourage casino operators to add non‐gaming elements. The proportion of non‐gaming elements will be taken into account when deciding the future distribution of gaming tables.


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - October 4, 2011

 

As we look at today’s set up for the S&P 500, the range is 73 points or -3.94% downside to 1099 and 2.44% upside to 1172

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 106

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1427 (633)
  • VOLUME: NYSE 1194.51 (-28%)
  • VIX:  37.81 -7.4% YTD PERFORMANCE: +113.01%
  • SPX PUT/CALL RATIO: 1.76 from 2.00 (-12%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 38.36
  • 3-MONTH T-BILL YIELD: 0.00%
  • 10-Year: 1.90 from 1.89     
  • YIELD CURVE: 1.64 from 1.63

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8 a.m.: RBC Consumer Outlook Index,
  • 8:30 a.m.: Initial Jobless Claims, est. 410k
  • 9:45 a.m.: Bloomberg Consumer Comfort, est. -52.0
  • 10:30 a.m.: EIA natural gas
  • 11 a.m.: Fed’s Fisher speaks in Fort Worth, Texas
  • 11:30 a.m.: U.S. to sell $10b 5-day cash mgmt bills
  • U.S. announces 3-yr, 10-yr, 30-yr auction sizes

 

 WHAT TO WATCH:

  • Former Apple CEO Steve Jobs passed away; Apple lower in European trading
  • Retailers report monthly sales; Retail Metrics sees 4.9% gain on delayed back-to-school shopping
  • BOE and ECB are both expected to leave their key interest rates unchanged; Jean Trichet presides over his final meeting
  • EC President Jose Barroso said the commission is proposing coordinated action to recapitalize banks
  • Microsoft said to be nowhere close to making a bid for Yahoo!
  • Geithner to tell House Financial Services Committee Europe debt crisis poses risk to global growth
  • HTC reports record profit on emerging markets demand
  • No IPOs expected to price today

 

COMMODITY/GROWTH EXPECTATION                                                                    

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • World Food Prices Fell for Third Month on Slumping Grains
  • Hermes Fund Sees Biggest Rebound in Gold, Grains: Commodities
  • Copper Advances as European Officials May Contain Debt Crisis
  • Farmland Seen Returning Up to 12% by U.S. Pensions Manager
  • Oil Rises a Second Day After U.S. Stockpile Drop, Jobs Increase
  • Corn Gains for Second Day as Informa Cuts Forecast for U.S. Crop
  • Gold Gains a Second Day as Europe Debt Woes Spur Investor Demand
  • Sugar Climbs as Lower Price May Spur Demand; Coffee Advances
  • Coffee Crop in Vietnam Region to Jump 10% as Quality Gains
  • Thailand’s Rice-Buying Plan Will Spur Economy, Yingluck Says
  • Oil’s Best See No Reversing Worst Run Since 2008: Energy Markets
  • New Hope Proves Exception to Coal Deals Returning Dust: Real M&A
  • Coal Price Signals Opportunity in Stock Plunge: Chart of the Day

 

CURRENCIES                                                                             

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

DAX – this move higher in German stocks is much more consequential than anything being squeezed in Asia or the US; the immediate-term TRADE line for the DAX that KM has been flagging = 5439; watch that line closely because it gives you plenty of information on what rumor is coming down the pike next. KM would not short Germany if that line holds.

 

EURO – interestingly, but not surprisingly, the Euro is up this morning on Barosso’s Bazooka comments (read them); problem there is timing (there is no timing!) and it will be very interesting to see if the Euro can get above a short-term line of 1.34 resistance if the Dutch vote down an expansion of the bazooka later on today.

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

 

Howard Penney

Managing Director

 

 


Limiting That Risk

This note was originally published at 8am on October 03, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I spend more time discussing risk and how to limit it than how to achieve investment returns.”

-Howard Marks

 

At the end of 2010, Howard Marks’ Oaktree Capital Management was running $82.4B in assets under management (Wikipedia). In May of 2011, he published an excellent risk management book titled “The Most Important ThingUncommon Sense for the Thoughtful Investor.” The aforementioned quote comes from the Introduction of his book.

 

I haven’t finished reviewing his book, but what I can tell you about it so far is that many of Marks’ thoughts will resonate with hardcore Risk Managers. Hope is not a risk management process. Neither is targeting returns. Mr. Macro Market doesn’t owe us anything.

 

Those who try to simplify investing do their audience a great disservice… successful investing involved thoughtful attention to many areas simultaneously… unfortunately the limitations of language force me to take one topic at a time.” (Marks, Introduction).

 

At Hedgeye, we call this being:

 

A)     Multi-factor (Countries, Currencies, Commodities, Companies, etc.)

B)      Multi-duration (TRADE, TREND, and TAIL)

 

This process, as Marks would undoubtedly support, is “my own approach.” And the only way to prove it out is by executing it out loud, every day, in front of you. “Experience is what you got when you didn’t get what you wanted.” (Marks, Introduction)

 

Back to the Global Macro Grind

 

When I can, I like to start the week off with where prices and my positioning ended in the week prior. In the Hedgeye Portfolio (LONGS minus SHORTS) we are still positioned net short (8 LONGS, 9 SHORTS). In the Hedgeye Asset Allocation Model (different risk management product than the LONG/SHORT Portfolio), we maintain very low gross exposure to most things inversely correlated to US Dollars:

  1. Cash = 73% (up from 70% at the start of last week)
  2. Fixed Income = 15% (US Treasury Flattener and Corporate Bonds – FLAT and LQD)
  3. International Currencies = 12% (US Dollar – UUP)
  4. US Equities = 0%
  5. International Equities = 0%
  6. Commodities = 0%

In other words, with markets around the world making new lows, we raised Cash last week – we didn’t “invest” it. That’s what we call limiting proactively predictable risk. From a Risk Factoring perspective, if our model across Countries, Currencies, Commodities, Companies, etc. told us to do otherwise, we would have.

 

From a Duration Risk perspective, Global Equity and Commodity markets are virtually all broken across all 3 of our core risk management durations (TRADE, TREND, and TAIL). That’s just not good. And we don’t buy things on “valuation” until price, volume, and volatility signals confirm that the valuation we are considering implies numbers that are within the stratosphere of reasonable expectations.

 

Do the 3 positions we’ve allocated assets to (UUP, FLAT, and LQD) uphold reasonable expectations?

  1. US Dollar (UUP) – Yes. The US Dollar was up a monster +6% for the month of September, outperforming pretty much everything Global Macro by pretty much a country mile (US Treasuries were up +1.5-2% for the month). The USD is now in a Bullish Formation (bullish TRADE, TREND, and TAIL) and what’s bad for Greek storytelling this morning is good for US Dollars.
  2. US Treasury Flattener (FLAT) – Is the Growth Slowing trade still one of the best calls of 2011? Yep. We’ve been long a Flattener since February 2011 as a means of expressing this view and that the Yield Curve would continue to compress as the long-end of the curve chased growth expectations lower. Bernanke’s Twist only perpetuates this compression.
  3. Corporate Bonds (LQD) – American corporate cash balances are cyclically high. Agreed. But, if growth continues to slow, and FX benefits (weak USD) become headwinds (strong USD), they’ll need that cash to buy back stock (Berkshire Hathaway). So… we ladies and gentlemen of Hedgeye would prefer to own corporate bonds than stocks at these prices (unless it’s our own stock).

At a price, will Global Equities be attractive? Obviously yes. But bottoms are processes, not points. And if the most recent month, quarter, and year-to-date in 2011 have anything to say about where to next, the leading of leading indicators (US Stocks) have not started to bottom out yet:

  1. September: SP500 and Russell2000 down -7.2% and -11.4%, respectively.
  2. Q3 2011 (A): SP500 and Russell2000 down -14.3% and -22.1%, respectively.
  3. Year-to-date (2011): SP500 and Russell2000 down -10.0% and -17.8%, respectively.

If anything, the accelerating feature of these prices (on the downside) in the face of accelerating volatility (on the upside) on both the TRADE (3 weeks or less) and TREND (3 months or more) durations only heightens the risk of the US stock market maintaining its already broken long-term TAIL (1266 resistance).

 

Remember, “the most important thing” about Big Government Intervention in your lives is that it A) shortens economic cycles and B) amplifies market volatility. You definitely want to be focused on Limiting That Risk.

 

My immediate-term support and resistance ranges for Gold, Oil, Germany’s DAX, and the SP500 are now $1538-1680, $77.47-82.19, 5098-5439, and 1113-1157, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Limiting That Risk - Chart of the Day

 

Limiting That Risk - Virtual Portfolio



investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next