Keith re-shorted Hanesbrands this morning – again -- on strength. It remains one of our top intermediate-term shorts.
Positions in Europe: Short FXE
Keith shorted the EUR/USD via the eft FXE today in the Hedgeye Virtual Portfolio with the price bumping up against our immediate term TRADE resistance level of $1.29. Our bearish view on the EUR and bullish view on the USD haven’t changed, but the price did. Keith took the opportunity to short FXE at $128.28. Our intermediate term TREND resistance level remains broken at $1.33 (see chart below).
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Claims Have Become an Significant 1H12 Tailwind to Bank Credit Quality and Loan Growth
The headline initial claims number fell 47k WoW to 352k (down 50k after a 3k upward revision to last week’s data). Rolling claims fell 3.5k to 379k. On a non-seasonally-adjusted basis, reported claims fell 125k WoW to 522k. For those unfamiliar with why we publish on claims every week, it's because they're the best indicator for how credit quality and loan growth trends are likely to fare over the next six months.
This morning's claims print is obviously strong. It also flies in the face of what we've seen in the last few years: claims tend to be weak in the start of the year. After the prior week's disappointing print, this week's print seems to lay to rest concern about an imminent back up in claims. We've pointed out that claims that are sustainably below the 385-400k range foster unemployment declines. While the unemployment rate is as much about the participation rate as the number of folks with jobs, the reason we think it matters is as a signal to broader confidence. As the unemployment rate falls it signals to the average American that things are improving, and that they should feel more confident about spending. In other words, it becomes an autocorrelated virtuous cycle.
We've also pointed out that an cointegrated relationship exists between claims and the S&P500. They don't stay diverged for long. It would seem that, just like last Fall, this time around the mean-reverting instrument is again the market. Full mean reversion from the market side would imply an index level around ~1360. Alternatively, claims would need to rise to ~410k to meet the market where the market is.
The 2-10 spread tightened less than 1 bp versus last week to 167 bps as of yesterday. The ten-year bond yield also fell less than 1 bp to 190 bps.
Financial Subsector Performance
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA
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THE HEDGEYE BREAKFAST MONITOR
Initial jobless claims dropped to 352k for the week ending January 14th versus 384k consensus and 402k (revised from 399k) the week prior.
Comments from CEO Keith McCullough
Note: my headlines that matter YTD have less and less to do with Europe – rest of the world matters too:
The only really bad news in my notebook this morning is Larry Summers being considered to run the World Bank.
MCD: McDonald’s U.S. December sales were “robust” according to a survey of McDonald’s franchisees carried out by Janney.
MCD: McDonald’s has raised prices for some items in China
SBUX: Starbucks may open its first store in India in 2H12.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
CBOU: Strong showing at ICR and lower coffee prices helping this company.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
TXRH: Shrugging off the downgrade from Tuesday to outperform casual dining.
BWLD: Declining on accelerating volume in a strong up tape yesterday.
The Macau Metro Monitor, January 19, 2012
SANDS COTAI CENTRAL TO OPEN BETWEEN 22 AND 27 MARCH Macau Business
According to HSBC, the 1st phase of Sands Cotai Central will open between March 22 and 27. LVS expects to open a 2nd casino by 3Q 2012.
MELCO CROWN EYES $2 BLN DEBT FOR NEW PROJECT Reuters
MPEL is looking for raise $2 billion for its Macau Studio City project. The debt funding will feature a loan-and-bond combo with the loan expected to be for around US$1.25BN and the US dollar bond for the remainder, according to another source. The borrower is in discussions with banks for the loan financing and is seeking underwritten commitments.
Melco's last visit to the loan markets was in May 2011 when it raised US$1.2BN through a dual-tranche financing comprising of an US$800MM term loan and a US$400MM revolver (deal priced all-ins of 208-308bp over LIBOR). The term loan amortizes to 50% and has a two-year grace period. The blended average life is 4.1 years.
OKADA SEEKING THREE BOARD SEATS AT WYNN RESORTS Macau Business, Intelligence Macau
Kazuo Okada, has nominated three candidates to Wynn Resorts' board. According to Intelligence Macau, three current directors are up for reelection at the 2012 shareholders' meeting - Linda Chen (President of Wynn International Marketing and COO of Wynn Macau), Marc Schorr (COO of Wynn Resorts), and John A. Moran.
CHINESE OFFICIALS SAID TO WEIGH EASING CONSTRAINTS ON BANKS BusinessWeek
China is allowing the nation’s five biggest banks to increase 1Q lending and weighing a plan to relax capital requirements as economic growth cools. The PBoC will let the larger lenders increase new loans by a maximum of about 5% from a year earlier, according to two people at state lenders who have knowledge of the matter. The banking regulator is delaying implementing the most stringent capital adequacy ratios and may lower risk weightings for loans to small businessmen and companies, four people said separately.
The central bank also said that 30% of full-year lending should be in 1Q, with the same amount in the second and 20% in each of the final two quarters, the people said. The risk weighting on personal operating loans given to small businessmen may be cut to 75% from the current 100%, while the ratio on loans to small and micro-sized firms would be lowered to 50% from 75%, according to two people.
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