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INITIAL CLAIMS - WHAT'S REALLY GOING ON?

Is the Jobs Data Getting Better or Worse? It Depends Whether You're Looking at the SA or NSA data.

Initial claims rose 2k last week to 367k (falling 1k after a 3k upward revision to last week's data). Rolling claims fell by 5.25k WoW to 379k. On a non-seasonally adjusted basis, claims rose 5k to 338k.

 

We've been vocal in highlighting the seasonality distortions taking place in the data, and how they'll continue to act as a headwind through the July/August peak effect. That said, it's also important to highlight the other side of this, which is that the real numbers are actually improving. Consider the chart below, which shows the year-over-year change in the non-seasonally adjusted data. By this measure, the data continues to steadily improve at a rate of roughly 10% per year, indicating the underlying health of the jobs market remains on track. Nevertheless, we believe that a majority of investors rely primarily on the printed, seasonally-adjusted number, and, as such, regard the environment as moving sideways to up.  

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - YoY NSA

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Raw

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Rolling

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - NSA

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - NSA rolling

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - S P

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Fed and Claims

 

2-10 Spread

The 2-10 spread tightened 9 bps versus last week to 156 bps as of yesterday.  The ten-year bond yield increased 10 bps to 182 bps.

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - 2 10

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - 2 10 QoQ

 

Financial Subsector Performance

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

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Subsector performance

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Subsector companies

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

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


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – May 10th, 2012

 

As we look at today’s set up for the S&P 500, the range is 21 points or -0.63% downside to 1346 and 0.92% upside to 1367.

 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels

 

THE HEDGEYE DAILY OUTLOOK - SECTOR TABL

 

THE HEDGEYE DAILY OUTLOOK - Global

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 5/09 NYSE -1080
    • Down from the prior day’s trading of -613
  • VOLUME: on 5/09 NYSE 940.15
    • Increase versus prior day’s trading of 4.2%
  • VIX:  as of 5/09 was at 20.08
    • Increase versus most recent day’s trading of 5.4%
    • Year-to-date decrease of -14.2%
  • SPX PUT/CALL RATIO: as of 05/08 closed at 2.03
    • Up from the day prior at 1.31 

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 38.05
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.89
    • Decrease from prior day’s trading at 1.82
  • YIELD CURVE: as of this morning 1.65
    • Down from prior day’s trading of 2.03

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Bank of England MPC rate decision, asset purchase target
  • 8:30am: Import Price Index, Apr., est. -0.2% (prior 1.3)
  • 8:30am: Trade Deficit, Mar., est. -$50.0b (prior -$46.0b)
  • 8:30am: Initial Jobless Claims, week of May 5 (prior 365k)
  • 8:30am: WASDE corn, cotton, soybean, wheat
  • 9:30am: Fed’s Bernanke speaks on bank capital in Chicago
  • 9:45am: Bloomberg Consumer Comfort, wk of May 6 (prior -37.6)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage change
  • 11am: Fed to sell $8b-$8.75b note, 10/15/13 to 1/31/14 range
  • 1pm: U.S. to sell $16b 30-yr bonds
  • 1:20pm: Fed’s Kocherlakota speaks in Minneapolis
  • 2pm: Monthly Budget Stmnt, Apr., est. $30.5b (prior -$40.4b)

 

WHAT TO WATCH:

  • Bank of England expected to halt bond purchases at GBP325b
  • Cisco forecast 4Q revenue, profit growth that missed ests.
  • Euro diminished in poll showing more than 50% predicting an exit
  • Intel hosts investor day; watch commments on capex, gross margin: Stifel
  • Hong Kong Exchanges said to submit takeover bid for London Metals Exchange
  • Spain takes over Bankia after chairman says he will step down
  • ArcelorMittal beats estimates on U.S. steel-demand recovery
  • Sony profit forecast misses estimates as TV sales decline
  • Australia’s jobless rate falls to 1-year low, currency rises
  • Yanzhou Coal among cos. in talks to buy Vale SA’s stake in an Australian coal mine for more than A$500m, people familiar said
  • U.K. March manufacturing increases more-than-forecast 0.9%
  • Japan posts current-account surplus for a second month
  • Bernanke gets 75% approval rating in Bloomberg global poll
  • Las Vegas, Atlantic City casino monthly figures may be released

 

ANALYST RATINGS

  • Big Lots (BIG) raised to overweight at Barclays Capital
  • General Growth (GGP) raised to buy vs neutral at UBS
  • Highwoods Properties (HIW) cut to hold vs buy at Jefferies
  • JDS Uniphase (JDSU) raised to buy vs neutral at UBS
  • Macerich (MAC) cut to neutral vs buy at UBS
  • Tanger Factory (SKT) raised to buy vs neutral at UBS
  • Tesoro (TSO) raised to buy at BofA
  • Tetra Tech (TTI) rated new at Roth, PT $35
  • Vail Resorts (MTN) cut to market perform at Wells Fargo
  • Vertex Pharmaceuticals (VRTX) cut to outperform at RBC Capital
  • Vulcan Materials (VMC) raised to outperform at RBC Capital

 

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Oil Snaps Longest Decline Since 2010 as U.S. Jobless Claims Fall
  • Copper Rises as Chinese Trade Figures Spur Stimulus Speculation
  • U.S. Soy Reserves May Fall 31% Before 2013 Harvest, USDA Says       
  • Brazil’s $2 Billion Sugar-Cane Revival Plan Fails: Commodities
  • U.S. Corn Reserves May Double on Record Crops, USDA Says
  • Soybeans Climb on Stockpile Speculation; Corn, Wheat Advance
  • Gold Declines for Fourth Day in New York as Dollar Strengthens
  • Cocoa Falls as Rain May Help Crop in Ivory Coast; Coffee Gains
  • Cotton Drops After Government Report Shows Bigger U.S. Harvest
  • Aluminum Buyers in Japan to Pay Record Fee as Supply Drops
  • Cosan’s $2.4 Billion Acquisition Spree Hurts Debt: Brazil Credit
  • London Oil Trades Beat New York for First Time: Chart of the Day
  • Cooking-Oil Imports by India Seen Advancing for Third Month
  • Florida Orange-Crop Estimate Little Changed, USDA Report Says
  • Arch Coal Lures Lenders With Coal in Ground: Corporate Finance
  • U.S. 2013 Wheat Stockpiles Seen Falling on Increased Exports
  • U.S. Cotton Crop Will Climb 9.2% as Harvested Area Expands

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

CURRENCIES

 

US DOLLAR – forget Greece, get the US Dollar right and you’ll get a lot of other things right. US Dollar index up for 6 consecutive days and US Stocks down for 6 consecutive days – the USD Correlation Risk is screaming at -0.90 USD vs SPX right now and that’s why Gold and Oil refuse to bounce too. Correlation Risk isn’t perpetual, but when in the soup, it matters.

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

EUROPEAN MARKETS

 

FRANCE – so you’re saying socialism is a ‘buy on the news’, eh? Non, non, mes amis – France flashing another negative divergence this morning, leading losers in Europe at -0.6%, taking the CAC’s draw-down from the March top (when European and US Growth Slowing accelerated on the downside0 to -14%.

 

THE HEDGEYE DAILY OUTLOOK - Europe

 

 

ASIAN MARKETS

 

CHINA – trade balance out last night just tells us more about what we already know – Growth Slowing in Asia marked the highs for both the Hang Seng and the Sensex all the way back in February. This is not new and it’s primarily why China continues to act pretty well on bad economic “news” (+0.1% overnight and +10% for 2012 YTD – my favorite Global Equity market).

 

THE HEDGEYE DAILY OUTLOOK - asia pacific

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - Middle East

 

 

The Hedgeye Macro Team

Howard Penney

Managing Director

 

 

 

 


KSS: Reactive

 

It’s about time. KSS is finally taking steps to adjust its pricing strategy a full quarter after JCP implemented its new EDLP approach in February. We’re rarely (if ever) a fan of reactive strategies and this one is no different. KSS will now be more aggressively fighting for share – that’s great, but others have already been taking it for the last 3-months now such as Macy’s, the off-pricers (TJX/ROST), etc. Increased competition in the mid-tier that will ultimately drive increased margin pressure is here and officially heating up. This isn’t good for KSS, or the companies that rely heavily on this channel for distribution such as CRI, HBI, GIL to name a few.


That said, KSS posted a very low quality SG&A driven beat for the quarter with both revenues and gross margins coming in soft. A few points of note here:

  1. Revenues were light. We knew that last Thursday and now KSS is going to try to drive traffic with lower pricing. This didn’t work out so well for JCP. We expect an uphill battle ahead for KSS as well. Not good.
  2. Gross margins also came in below expectations. While some portion of this degradation was due to the new pricing initiative, KSS’ sales/inventory spread is virtually unchanged and still among the worst in the mid-tier. That’s very gross margin bearish over the intermediate-term.
  3. SG&A was the saving grace in the quarter coming in $66mm lower yy. We’d prefer to see KSS invest in remodeling some of its tired store base rather than pulling this lever so heavily to make EPS. It may indeed help manage earnings near-term, but that’s no good for F13 earnings growth sustainability.

All in, KSS is guiding Q2 down, but maintaining full-year expectations implying a more bullish view on 2H results. A strategy change of this magnitude is hardly a 1-qtr transformation – just ask Ron Johnson. This not only takes up the risk embedded in management’s guidance substantially, but it also increases the mid-tier competitive environment.


Here are a few more details regarding Q1 results:


Pricing: the newly implemented lower price strategy resulted in gross margins -220bps vs. guidance of -160E & the street -151E.

 

Opex: KSS beat this morning on a ~$70mm reduction in SG&A spend to offset comps coming in light (+0.2% vs +1E).

 

Core Contracting: E-commerce sales were not given in the press release, but if we assume 10% growth in 1Q12 (on 40% growth in FY2011), new store sales suggest the core business contracted -0.2%.

 

Guidance: 2Q guidance per the press release is $0.09-$0.17 below consensus at $0.96-$1.02 vs. $1.13E driven by sales +2%-3% vs. +3.1E and comps flat to +1% vs. +1.2E. The delta seems to be primarily attributable to lower
priced sales driving the top line. The street is looking for Q2 Gross Margins to be -94bps- they may come in closer to -150bps. For the full year, KSS reiterated EPS of $4.75 vs. $4.74E suggesting some back half improvement
relative to expectations. Guidance suggests 2H earnings of $3.10-$3.16 vs. $3.03E which seems to be driven by better positioning for back to school and the lower pricing.

 

Inventories: Inventories were +7% in 1Q12 vs. +5% in 4Q11. As a result of first quarter revenues +2% vs. slightly negative in 4Q11, the sales/inventory spread improved 1 pt sequentially though remains -5%.

 

KSS: Reactive  - KSS SIGMA

 

Casey Flavin

Director

 

Matt Darula

Analyst









 

 


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Loss of Confidence

This note was originally published at 8am on April 26, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The failure of the Knickerbocker Trust was just the beginning of a more general loss of confidence.”

-Jim Rickards

 

Anyone who has been in this business for more than the last 5 years knows what the biggest problem is for the US stock market – confidence. The People do not trust the financial system and all of its central planning puppetry. Therefore, The People are not giving the asset management community the number one thing they want – fund flows.

 

No Confidence. No Flows. No Volume.

 

That’s not new this morning. Neither is the world’s reaction to the US Federal Reserve’s un-elected Central Planner in Chief’s Policy to debauch the US Dollar in a repeated, but fleeting, attempt to inflate stock and commodity prices.

 

Sure, the price of Oil and Gold are up on the Dollar Down move. But they are up less than they were on Bernanke’s moves to Qe1, Qe2, and Qe3 (Bernanke’s latest war on the American Consumer (and Saver), pushing 0% interest rates on fixed income savings accounts to 2014 was a hybrid Qe3). We don’t think he has an iQe4 upgrade in his bailout bag during the General Election debate.

 

The reason why I used another one of Jim Rickards’ quotes (page 49 of Currency Wars) this morning is that it’s a critical one to consider in terms of why the US Federal Reserve Act of 1913 was established in the first place.

 

I’ll let you read Rickards book to form your own opinion on this, but the upshot of the problem was that NYC bankers, traders, etc. have always had the same problem – at a point, they take on too much risk with other people’s money, and they blow up.

 

In any other business, you’d be accountable for those losses and your business would go away. Post the 1907 Crisis, when banks like Knickerbocker literally blew up, banking and capital markets related companies have worked very hard at making sure that they have an un-elected man at the Fed that they can both appoint and politicize for their own compensation purposes.

 

The Fed was created to bailout banks, not American consumers.

 

Back to the Global Macro Grind

 

While it’s both shocking and sad (but expected), Ben Bernanke was able to get through an entire press conference yesterday without mentioning the words “US DOLLAR.”  What might be an even more glaring national embarrassment was that not 1 American journalist asked him about it either.

 

For those of us who aren’t paid to be willfully blind, here’s how real-time market expectations work:

  1. The Fed’s Monetary Policy drives the direction of the US Dollar
  2. The US Dollar, since it’s the world’s reserve currency, drives real Dollar adjusted expectations in liquid asset prices
  3. The inflation or deflation of asset prices (commodities in particular) drives the slope of Global Consumption Growth

I have my B.A. in Keynesian Economics from Yale. I don’t need a Ph.d in that dogma to explain to me how obvious the relationship is between the US Dollar and its purchasing power. Try it with your own money at home – you’ll get the point.

 

Despite Spain crashing again (Spanish stocks down -22% since February), even the Euro is strong versus the US Dollar this morning. The #1 Most Read Headline on Bloomberg: “Bernanke Prepared To Do More.” And the US Dollar Index is down for the 6th out of the last 7 weeks.

 

Our models show that Global Consumption Growth has never NOT slowed with oil above $96/barrel. Pick your vintage, Brent or WTIC, last I checked nothing happened in Iran overnight either. Prices of $104 and $119 per barrel, respectively, don’t lie; politicians do.

 

Does money printing matter? Does the amount of Dollars (World Reserve Currency) matter relative to World Oil Reserves? Of course they do. In 1990 the ratio of US Money Supply (M3)/Proved Oil Reserves = 4.1x. Today, that ratio = 10.7x. Reversing this factor alone would get you $75-80 oil, and the 99% would love that.

 

Got 1990s? Look at our Chart of The Day, then pull up a long-term chart of Oil – and you’ll see what I mean by Loss of Confidence:

  1. US Consumer Confidence tracked between 80 and 140 during the 1990s (this week it hit 69.2 for April)
  2. US Dollar Index Averaged $92.93 during the 1993-1999 expansion (avg GDP was 3.84%, so demand did what to oil?)
  3. Average price per barrel of WTIC Oil during 1993-1999 expansion = $18.63/barrel (not a typo)

It’s the US Dollar Stupid. That’s what real people use when they buy gas at the pump. So, if you’re part of a Keynesian crack house in Washington that’s addicted to devaluing the credibility and currency of the American people, shame on you.

 

If you want to try the “counter factual”, get your conflicted and compromised Fed friends to raise interest rates on Sunday night and tell me how many call options on oil you want to buy in front of that.

 

If you want to tell me Oil is up because of Iran, show me something going on in Iran. If you want to tell me Oil is up because global demand is up, show me where growth isn’t slowing.

 

Show me something. But don’t show me another complete embarrassment like yesterday’s Fed Press Conference. The concept of “price stability” (Fed mandate) does include the currency in which prices are paid. The Loss of Confidence in this country is rightly placed.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1633-1655, $118.64-120.77, $78.97-79.44, and 1377-1394, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Loss of Confidence - Chart of the Day

 

Loss of Confidence - Virtual Portfolio



American Pilots

“American and British pilots were forced to learn about this lethal athlete the hard way.”

-Ian Toll

 

Don’t blame the pilots. Blame the politicians. They were willfully blind to obvious risks and put our bravest in the sky anyway. That’s one of the key risk management and leadership lessons I learned from Ian Toll’s excellent new book about WWII, Pacific Crucible.

 

“The Mitsubishi A6M Zero was a dog-fighting champion, and aerial acrobat that out-turned, out-climbed, and out-maneuvered any fighter plane the Allies could send against it… The Zero had been placed in service in the summer of 1940, almost 18 months before Pearl Harbor… it was yet another example of the fatal hubris of the West in the face of plentiful evidence..” (pages 52-53)

 

I read about war because it educates me on winning and losing. Every decision counts. Decision processes matter. There has been “plentiful evidence” that the US Dollar has been driving The Correlation Risk in Global Macro markets since 2007-2008. There has also been an outright obfuscation of facts by Western Academics who have chosen to ignore it. It’s un-objective and un-American.

 

Back to the Global Macro Grind

 

The US Dollar is up for the 7thconsecutive day and US Stock Futures are indicated down for the 7thconsecutive day. There is absolutely zero irony in this causal relationship. Policy expectations drive currency prices.

 

In the absence of immediate-term expectations for an iQe4 upgrade of Gold and Oil price inflation from Ben Bernanke, the US Dollar has arrested its decline – and stocks and commodities have arrested their ascent.

 

Here’s a real-time update on the surreal Correlation Risk (inverse correlations between the USD and asset prices) developing:

  1. SP500 = -0.90
  2. Euro Stoxx = -0.92
  3. CRB Commodities Index = -0.94
  4. WTIC Oil = -0.89
  5. Gold = -0.89
  6. US Equity Volatility (VIX) = +0.93

Yes, you’ll notice that in the Romper Room that has become Keynesian Economic Policy outcomes, one of these things is not like the other – one of these things just doesn’t belong. It’s called volatility.

 

The US Federal Reserve has a 2-stroke mandate:

  1. Price “stability”
  2. Full Employment

We have neither. We have price volatility like the world has never seen. And we have forced American Pilots of other people’s hard earned moneys to chase their own tails of performance going after short-term and short-sighted Policies To Inflate.

 

As US Dollar Debauchery has only proven to Slow Global Economic Growth via accelerating short-term food and energy price inflations, now world markets have to deal with the other short-term side of the trade:

  1. Growth Slowing (until it slows at a slower rate)
  2. Deflating The Inflation (Bernanke’s Bubbles in Oil, Gold, etc. are popping)

When these 2 things are happening at the same time, you just cannot ignore the capital losses. They happen real fast.

 

That said, what’s been fascinating about this -4.6% draw-down in the SP500 from its April 2nd, 2012 top (capital loss from the Russell2000 March 26th, 2012 top = -6.9%) isn’t the absolute performance impact, but the Storytelling.

 

The Most Read (Bloomberg) headline this morning epitomizes the storytelling of the Old Wall: “Dow Falls For 6th Day In Longest Losing Streak Since August On Greece.

 

On Greece? C’mon. Americans in this profession are better than that.

 

You can look at real-time market signals (leading indicators) in 2-ways at this stage of the Fed Fight:

  1. What’s happened on the margin (draw-downs) from the YTD tops in February-April
  2. What’s happened YTD

The YTD thing is all about the Storytelling. Just don’t do it with my money. Last I checked, the SP500 is still down -13.5% from its willfully blind 2007 high and needs to be up almost +16% (from here) just to get The People and their 301ks back to break-even.

 

Everything that happens on the margin in markets matters most to the American and Global Macro Pilots who are trying to manage your money’s real-time risks. What happens on the margin is what drives fear and greed. It’s also what builds or destroys confidence.

 

If you don’t have planes or markets that the pilots can trust, you’re one step closer to losing whatever is left of the money they are willing to flow back to the politicized decision making process that’s driving markets.

 

Bottoms are processes, not points. We humbly suggest you fly these risky skies of Federal Reserve sponsored Price Volatility with the credible analytical sources out there who have actually landed the planes for the last 5 years.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, and the SP500 are now $1, $110.23-113.89, $79.42-80.28, $1.29-1.31, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

American Pilots - Chart of the Day

 

American Pilots - Virtual Portfolio


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