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JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY

Initial Claims Fall Slightly

Initial jobless claims fell 2k to 357k last week, though after a 4k upward revision to the prior week's number the reported WoW decline is 6k. On a rolling basis, after the revisions the series fell by 4k to 362k. On a non-seasonally adjusted basis, claims fell 12k to 311k.

 

We continue to expect claims to rise meaningfully over the coming five months as the seasonal adjustment factors turn from tailwind to headwind. This will be an overhang on Financials through the Spring and Summer months. In our last claims note, we noted that the S&P and claims had converged. These two series are highly cointegrated, meaning that they move together over long periods of time but are susceptible to short-term divergences. As such, based on our expectation for claims to rise ~40k in the coming months, we expect the sector to come under growing pressure.

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - Rolling

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - Raw

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - NSA

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - NSA rolling

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - S P2

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - Fed2

 

2-10 Spread

The 2-10 spread widened 3 bps versus last week to 188 bps as of yesterday.  The ten-year bond yield increased 3 bps to 223 bps.

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - 2 10

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - 2 10 QoQ

 

Financial Subsector Performance

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

 

JOBLESS CLAIMS FALL SLIGHTLY, BUT REMAIN POISED TO CLIMB MATERIALLY - Subsector Performance6

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

Having trouble viewing the charts in this email?  Please click the link below. 


THE HBM: PNRA, DPZ, MCD, BKC, YUM, TXRH, RT

THE HEDGEYE BREAKFAST MONITOR

 

Hedgeye Restaurants Alpha – our best fundamental ideas

 

LONGS: SBUX, PFCB, EAT, YUM

SHORTS: DNKN, BWLD, WEN, DPZ

 

RESTAURANT STOCKS IN THE HEDGEYE VIRTUAL PORTFOLIO

 

LONGS: PFCB, EAT, JACK, SBUX

SHORTS: MCD

 

MACRO NOTES

 

Consumer

 

Initial jobless claims came in at 357k versus 355k consensus and 363k the week prior (revised from 359k).

 

THE HBM: PNRA, DPZ, MCD, BKC, YUM, TXRH, RT - moving claims

 

Commentary from CEO Keith McCullough

 

Reality bites – Top 3 Most Read (Bloomberg) = 1. US Stocks Drop 2. Spain Extreme Difficulty 3. Commodities Drop On Fed:

  1. SENTIMENT – whether it was our go to move (selling gross Equity/Commodity/Beta exposure at VIX 14-15) or the II Bull/Bear Spread survey which hit a fresh 3yr high before yesterday’s fall (+3,150bps Bull Spread = 53% Bulls; 21.5% Bears), it was all out there. Plenty Hedge Funds got squeezed out of their short positions right at another intermediate-term top.
  2. GERMANY – one of the most critical leading indicators for Global Growth Slowing is the DAX and the correction there is instructive (-5.7% from the March high) given that Germany’s fiscal and employment situation is much better than the USA’s right now. The immediate-term TRADE line for the DAX is now broken (6978); for the USA, the equiv SP500 line = 1390.
  3. COMMODITIES – kaboom! USD + UST Yields up = Gold down. That we know. What we don’t know is how quickly Deflating The Inflation will help Global Consumption. We’ve seen this big beta Commodity crash 3x coming out of Q1 in the last 4yrs. We call it the Correlation Risk, and it matters. Energy stocks (XLE) = down -7.8% for April to date!

Buying the Financials and selective Consumer Discretionary on red. Rising 10yr yield and getting Bernanke out of the way = good for both.

KM

 

SUBSECTOR PERFORMANCE

 

THE HBM: PNRA, DPZ, MCD, BKC, YUM, TXRH, RT - subsector

 

 

QUICK SERVICE

 

PNRA: Panera Bread was initiated Outperform at Credit Suisse.

 

DPZ: Domino’s new advertising campaign is centered on telling customers “no” – referring to its artisan pizza line that has, according to the company, no need for substitutions or additions.

 

DPZ: Domino’s UK & Ireland’s stock, ticker DOM.LN, has been sinking like a stone since the company reported SSS last week.

 

MCD: McDonald’s won dismissal of a 2010 lawsuit over deceptive marketing of its Happy Meals.

 

BKC: Burger King was forced to pull its Mary J. Blige advertisement after it was not received well.

 

YUM: Taco Bell is looking to get into e-commerce, according to adage.com

 

 

CASUAL DINING

 

TXRH: Texas Roadhouse is partnering with Snagajob to recruit, hire, and manage its hourly workforce.  Are labor margins not up to standard? Why this move?

 

RT: Ruby Tuesday reported 3QFY12 EPS of $0.18 versus consensus $0.16.  Same-store sales were down -5%.  The company sees same-store sales at company-owned restaurants declining by 4-4.5% in FY12.

 

THE HBM: PNRA, DPZ, MCD, BKC, YUM, TXRH, RT - RT POD1

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

Casual Dining down on accelerating volume.  Are the stocks catching up with reality that sales are slowing? RT says a -5% SSS “primarily due to the double-digit year-over-year competitive ad spending with combined aggressive value promotions by our competition.”  Between conversions and store closures the Ruby Tuesday’s brand is in a slow and steady decline.  A net positive for Chili’s (EAT)

 

RRGB: Following its analyst meeting, RRGB was the worst performing stock.  We believe that the team’s strategic vision of broadening its appeal to more adult consumers is failing to gain traction.

 

 

THE HBM: PNRA, DPZ, MCD, BKC, YUM, TXRH, RT - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


F3Q12 WMS PREVIEW

In-line should be good enough.

 

 

We’re not as bullish on the stock as we were in mid-March when the whisper was that WMS was going to miss another Q.  The stock was trading at sub-$22 then so expectations for the quarter have probably risen.  However, we think there are still quite a few people expecting a FQ3 punt yet there is a decent chance they make the number.  Our EPS and revenue projections of $0.44 and $193MM, respectively, are in-line with consensus.

 

We estimate product sales of $121.5MM and $62MM of gross profit, boosted by recognition of the Ohio units that were deferred last quarter.

  • 6.3k new units sales at $16.4k
    • 4.1k domestic units
    • WMS will likely recognize Ohio shipments in the March quarter.  We believe IGT will defer recognition of their Ohio shipments until the casinos are licensed and ready to open.  The operators have “provisional licenses”/“letters of acceptance” which give them authorization to receive slot machines but are not fully licensed so there is some room for interpretation on whether manufacturers can recognize the revenue this quarter.  Of the 957 deferred units shipped by WMS in December, we are fairly confident all of them were to the PENN and CZR’s Ohio casinos; implying a low 20’s share which should be viewed positively by investors. 
    • 2.2k international shipments, up QoQ but down 6% YoY
  • $18MM of parts, used machines and conversion kit sales
    • 4.4k conversion kit sales
    • 2k used machine sales

Gaming operations revenue and gross margin of $65.5MM and $51.8MM, respectively

  • Flattish sequential EOP install base of 9.3k but a sequential decrease in the average install base
  • A small sequential improvement in win per day, mostly benefiting from seasonality
  • Incremental revenue growth from portal application and the UK casino
  • Their approvals of titles and game rollout are proceeding on schedule - Clue has been featured in several of the CZR’s properties for over a month now.

Other stuff:

  • R&D of $24MM
  • SG&A of $33MM
  • D&A of $21MM
  • $2MM of interest and other income
  • 36.5% tax rate
  • 55.8MM diluted shares 

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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – April 5, 2012


As we look at today’s set up for the S&P 500, the range is 15 points or -0.43% downside to 1393 and 0.65% upside to 1408. 

                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:


SENTIMENT – whether it was our go to move (selling gross Equity/Commodity/Beta exposure at VIX 14-15) or the II Bull/Bear Spread survey which hit a fresh 3yr high before yesterday’s fall (+3,150bps Bull Spread = 53% Bulls; 21.5% Bears), it was all out there. Plenty Hedge Funds got squeezed out of their short positions right at another intermediate-term top. 

  • ADVANCE/DECLINE LINE: -1838 (-949) 
  • VOLUME: NYSE 832.49 (1.87%)
  • VIX:  16.44 4.98% YTD PERFORMANCE: -29.74%
  • SPX PUT/CALL RATIO: 1.89 from 1.67 (13.17%) 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 39.79
  • 3-MONTH T-BILL YIELD: 0.07%
  • 10-Year: 2.18 from 2.22
  • YIELD CURVE: 1.84 from 1.88

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: Challenger Job Cuts (Y/y), Mar.
  • 8:30am: Jobless Claims, week of Mar. 31, est. 355k (prior 359k)
  • 9:10am: Fed’s Bullard speaks in St. Louis
  • 9:45am: Bloomberg Consumer Comfort, week of Apr. 1
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas
  • NOTE: Friday: U.S. unemployment/payrolls report, 8:30am 

GOVERNMENT:

    • Mitt Romney, Rick Santorum hold campaign events in Pennsylvania, site of Republican primary on April 24
    • President Obama signs “Jumpstart Our Business Startups” Act, 2pm 

WHAT TO WATCH:

  • Gap, Macy’s among U.S. retailers reporting March comp sales, Retail Metrics est. +3.3% gain; Zumiez beat est., Costco missed
  • U.S. sales of Nokia Lumia 900, which debuts this weekend, seen at below 1m in 1st 3 mos: analysts
  • U.S. said to be near settlement with Simon & Schuster, HarperCollins, Hachette on e-book price contracts with Apple
  • Phil Falcone said he may consider voluntary bankruptcy for LightSquared
  • AT&T faces strike this weekend from 40,000 workers
  • IBM bought 20% stake in the technology unit of Brazilian billionaire Eike Batista
  • Blackstone agreed to buy 69 warehouses valued at about $800m from Dexus Property Group
  • Dick’s Sporting to make GBP20m investment in U.K.’s JJB Sports, entitled to nominate up to 2 non-exec. directors to JJB board
  • Toshiba, Hynix considering joint bid for Elpida, Nikkei says; Micron Technology seen as preferred bidder
  • JPMorgan CEO Jamie Dimon used his annual letter to shareholders to rail against “contrived” and confusing financial rules that he said may stymie lending
  • Rambus appeals $3.95b California antitrust trial loss to Hynix, Micron
  • Great Wolf gets $6.25/shr cash offer from KSL Capital, topping Apollo’s bid
  • DirectTV reaches agreement to carry Tribune television stations, ending 4-day blackout of 23 local outlets
  • 3D Systems to replace Taleo in S&P Smallcap 600 effective at end of day
  • FRIDAY: U.S. may report tomorrow that employers added 205k jobs, unemployment rate remains at 8.3% 

EARNINGS:

    • Pier 1 Imports (PIR) 6 a.m., $0.48
    • CarMax (KMX) 7:30 a.m., $0.40
    • Constellation Brands (STZ) 7:30 a.m., $0.39
    • RPM International (RPM) 7:30 a.m., $0.01
    • Schnitzer Steel Industries (SCHN) 8:30 a.m., $0.32
    • WD-40 (WDFC) 4 p.m., $0.54    

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


COMMODITIES – kaboom! USD + UST Yields up = Gold down. That we know. What we don’t know is how quickly Deflating The Inflation will help Global Consumption. We’ve seen this big beta Commodity crash 3x coming out of Q1 in the last 4yrs. We call it the Correlation Risk, and it matters. Energy stocks (XLE) = down -7.8% for April to date! 

  • Gold Traders Bearish for First Time in 2012 on Fed: Commodities
  • Oil Trades Near Seven-Week Low on Renewed European Debt Concern
  • Cocoa Extends Drop as Ivory Coast Rains Return; Sugar Retreats
  • World Food Prices Climb for Third Month as Oilseed Costs Rise
  • Soybeans Rise, Set for Second Weekly Gain on Brazil Crop Concern
  • Gold May Gain as Drop to Near Three-Month Low Spurs Purchases
  • Palm-Oil Stockpiles in Malaysia May Reach Seven-Month Low
  • Cooking-Oil Imports by India Surge on Local Prices, Tax Risk
  • Copper May Advance as Economists Project Firm U.S. Employment
  • India Billions Secure Afghan Mines in Challenge to China Drive
  • China May Approve Vale Vessels to Stop in Ports: Daily
  • World Cotton Output to Fall After Prices Plunged, Ecom Says
  • BP Pursues Namibia Crude Amid No Known Discovery of Oil: Energy
  • Gold Traders Bearish for First Time in 2012
  • Palm Oil Heads for Fifth Weekly Advance on Soybean Crop Concerns
  • Rubber May Decline 8% as Rally Loses Steam: Technical Analysis
  • Ship Smog Seen as Next Target to Clear Hong Kong Skies: Freight 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES 

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


GERMANY – one of the most critical leading indicators for Global Growth Slowing is the DAX and the correction there is instructive (-5.7% from the March high) given that Germany’s fiscal and employment situation is much better than the USA’s right now. The immediate-term TRADE line for the DAX is now broken (6978); for the USA, the equiv SP500 line = 1390.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS 

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 

 


Roped In

This note was originally published at 8am on March 22, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“In the contest between inflation and deflation, the rope is the dollar.”

-James Rickards

 

I’ve finally jumped into a book I’ve been really excited about, James Rickards’ “Currency Wars”, and the preface does not disappoint. From a risk management perspective, I couldn’t agree more with the aforementioned quote.

 

Rickards takes the currency debate right up the middle on the Chairman of the Federal Reserve reminding us that “by printing money on an unprecedented scale, Bernanke has become a twenty-first century Pangloss, hoping for the best and quite unprepared for the worst.”

 

As a reminder to The Ben Bernank and his central planning followers, hope is not a risk management process.

 

Back to the Global Macro Grind

 

On Tuesday, I bought back my Strong Dollar position via the UUP. Yesterday, I sold my only remaining long Commodity position (Oil), taking my asset allocation to Commodities back down to ZERO percent.

 

Even though he’s never traded a Global Macro market with his own capital at risk in his life, Bernanke would probably smile when considering my 0% strategy move. The man likes zeroes.

 

The Zero Bound, or a 0% “risk-free” rate of return, concept is littered with unintended consequences. If you don’t believe that, ask the Japanese. They’ve had 20 years of anemic economic growth and will have 25% less people living in Japan come 2050.

 

If you do believe in the globally interconnected risk associated with the world’s reserve currency, you probably get why this entire “contest between inflation and deflation” comes down to what Bernanke/Geithner do to US Dollar policy (monetary and fiscal). When it comes to commodities inflating/deflating the CRB Index (19 commodities) has a 60-day correlation to the US Dollar of -0.64%.

 

Correlation? Yes Keynesians of the academic gridiron, unite! Correlation Risk in markets doesn’t always imply causality. But sometimes it does.

 

So why get long the US Dollar right here?

  1. It’s going up today, and we know performance chasers just love a good chase
  2. It is breaking out above our intermediate-term TREND support line of $79.33 again
  3. It has fortified its base, holding our longer-term TAIL support line of $76.11
  4. The Japanese Yen has moved into crash/crisis mode (bullish USD/YEN)
  5. The Euro continues to fail at $1.33 resistance as European Growth Slowing continues

Got Growth Slowing?

 

Apparently consensus doesn’t want to agree with us on this yet. In a note earlier this week I highlighted the Credit Suisse call to action that “economic momentum indicators suggest global and US growth is still well above consensus” – and while the people I used to work with there are good people, that call on growth is simply just wrong this morning.

 

1.   ASIA: China and India, in particular, are showing glaring signs of Growth Slowing sequentially here in March. Whether it was India’s stock market down another -1.8% overnight (down -6.1% since the Feb YTD top) on a mounting deficit problem or both the Shanghai Composite and Hang Seng snapping their respective immediate-term TRADE lines of support in the last week as China’s PMI (HSBC) was printed overnight at a fresh 4-month low – it’s all there. #GrowthSlowing

 

2.   EUROPE: Inflation Slows Growth; particularly when Europeans have to deal with Brent Oil prices of $122-127/barrel – never mind being bent over a barrel by that sneaky little Keynesian critter called debt (which structurally impairs long-term growth). Looking at Europe’s PMI numbers for March, here’s what the river cards look like:

 

Manufacturing:

A)     France 47.6 MAR (exp. 50.2) vs 50 FEB

B)      Germany 48.1 MAR (exp. 51) vs 50.2 FEB

C)      Eurozone 47.7 MAR (exp. 49.5) vs 49 FEB

 

Services:

D)     France 50 MAR (exp. 50.3) vs 50 FEB

E)      Germany 51.8 MAR (exp. 53.1) vs 52.8 FEB

F)      Eurozone 48.7 MAR (exp. 49.2) vs 48.8 FEB

 

Now we all know that Swiss turned American bankers can get creative in their accounting, but by our Canadian-American math, this morning’s Global Growth data is well below consensus.

 

How about US Growth?

  1. It has never NOT slowed with oil prices over $100/barrel (that’s why the FEB ISM number dropped 3% from JAN)
  2. Since 71% of US GDP = Consumption, real (inflation adjusted) growth slows, big time, when inflation accelerates
  3. Q4’s US GDP print of 3.0% carried a 0.86% Deflator; that deflator should double or triple in Q1

In other words, our Global Macro Model will not be surprised if US GDP growth gets cut in 1/2 , sequentially, from Q4 of 2011 to Q1/Q2 of 2012. If we don’t see a Strong Dollar (like we did in Q4) soon, you’ll see weakening US Consumption.

 

So that brings me to a comma, instead of a full stop. If you are staying one step ahead of me, you’re going to ask if Strong Dollar would get me more bullish on both US Economic Growth and US Equities. The answer to that (as it was every day in January 2012 up until Ben Shalom Bernanke decided to debauch the Dollar on January 25th), is yes.

 

Whether our almighty central planners like to admit it or not, we’ve all been Roped In. This “contest between inflation and deflation” has been called “risk on and risk off.” But risk is always on – especially the globally interconnected stuff. Risk never sleeps.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1623-1671, $122.12-124.89, $79.33-80.58, and 1395-1409, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Roped In - Chart of the Day

 

Roped In - Virtual Portfolio



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