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October ECB Presser: The Action of Inaction

Takeaway: ECB on hold and Draghi is über confident that he can control risk with the OMTs. We think this attitude is misplaced.

Positions in Europe: Long German Bonds (BUNL)

 

After ECB President Mario Draghi made his big central bank splash last month the Outright Monetary Transactions (OMTs) programs to buy “unlimited” sovereign bonds of Eurozone members at the bank’s discretion, little was said in today’s press conference in the form of an updated outlook on the economic conditions of the region. There was no clarification to when the OMTs may be activated, on the scope and conditions for the ESM to recapitalize banks, or on the oversight structure of a discussed banking union (that is if the ECB will head a supervisory board or not).

 

You can find Draghi’s Introductory Statements to the press conference related to inflation, growth and monetary outlook here.

 

With a unanimous decision the ECB governing council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.

 

On the OMTs, Draghi’s Q&A language seemed to suggest that the program will not be issued in the next weeks, and once again underlined the importance that for the ECB to acquiesce to buying a country’s bonds it must first reach any number of pre conditions (mostly fiscal consolidation) with the country. In so many words he stated that most European countries that would be eligible for the OMTs have both a reasonable debt maturity schedule and debt load, so they’ll not have to use the OMTs given their “open” market access. Further, Draghi said that the OMTs are not a replacement for open market access, meaning that a country that cannot freely issue its own debt is also not a country that the OMT will consider.  So here Draghi is giving a nod to Portugal and Ireland. [Note: this week Portugal did complete a bond swap of 3.76B EUR, purchasing bonds maturing in 2013 and selling bonds maturing in October 2015. This was the country’s first buying since it took a bailout last year].

 

We believe that Draghi’s OMTs comments present too cavalier of an attitude towards the brewing risks across the peripheral. While we don’t think he’s unaware of the broader risks, he seems to believe that he can blanket the risk so long as he has the OMTs in his back pocket.

 

Our call remains that there are great risk across the Eurozone ahead, especially in an environment of growth slowing, inflation rising, and economic misses on the back of completely compromised and incorrect economic assumptions from governments. To this last point just last week the Spanish government stated that its GDP would be -0.5% in 2013, while just today Bank of Spain Governor Luis Maria Linde told parliament that GDP would contract -1.5% in 2013, and added that the deficit may be missed.  You think!

 

October ECB Presser: The Action of Inaction   - cc. ecb rates

 

Matthew Hedrick

Senior Analyst


California: Running On Fumes

Los Angeles and other California cities are running out of gasoline due to a shortage of supply in the area, driving prices 45 cents higher to $5/gallon at some stations. It doesn’t help that some major refineries at Chevron (CVX) and ExxonMobile (XOM) are under both planned and unplanned maintenance. 

 

Tesoro (TSO) stands to benefit from the shortage in the near-term as the ANS/USWC 3-2-1 crack is at $50/bbl (see below). The massive spike that took it from under $30/bbl to $50/bbl is where the money is. Short-term bonuses aside, the pain at the pump could lead to negative backlash from the press for TSO at a time when the company is trying to acquire a California-based BP refinery. Should the FTC block the deal, TSO’s stock will likely take a meaningful hit. 

 

California: Running On Fumes  - LAgasolineprice


Romney Rally: SP500 Levels, Refreshed

Takeaway: #EarningsSlowing is bearish. Potential for political change (was with Obama in 2009 too) is bullish.

POSITIONS: 9 LONGS, 5 SHORTS

 

I leaned longer again on the open, covering CAT and buying some of our favorite long ideas. The signal is the signal. I think I’ve been as flexible adhering to leaning long or short in the last 3 weeks as I have all year.

 

Across risk management durations, here are the lines that matter to me most:

 

  1. Immediate-term TRADE resistance = 1463
  2. Immediate-term TRADE support = 1448
  3. Intermediate-term TREND support = 1419

 

In other words, what was resistance yesterday (1448) is now support. That changed, so I did. And there are no rules against selling some at 1463 ahead of tomorrow’s employment report either. That’s the market we are in. Romney just changed the probabilities of Obama winning too.

 

#EarningsSlowing is bearish. Potential for political change (was with Obama in 2009 too) is bullish.

 

Keep managing the risk of this 1 (Bernanke Top) range.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Romney Rally: SP500 Levels, Refreshed - SPX

 


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INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET

Takeaway: Claims retrace some of the prior week's improvement. Meanwhile, the market continues to look frothy based on the current labor market.

***The following note comes from our Financials team led by Managing Director Josh Steiner. If you aren't yet receiving their work on the space, including their seminal work on the U.S. housing market, please email if you're interested in setting up a trial.***

 

 

Jobless Claims - Small Step Backward

Initial claims rose 8k last week to 367k but after incorporating the upward revision to the prior week's data, rose only 4k. Rolling claims were unchanged at 375k. On a non-seasonally adjusted basis, claim were 5k lower than the prior week, ending at 299k. Last week, the rolling NSA YoY series weakened from -7.7% YoY to -7.3% YoY. The rate of improvement in claims has been slowing since early 2010. We like to look at the rolling NSA series on a YoY basis because it removes the effects of seasonality. For reference, this morning's print was slightly lower than consensus expectations for 370k.

 

Overall:

Over the coming months we expect jobless claims to benefit from distortive seasonality tailwinds. In the first chart below we show how the claims series trends lower from September to February and goes sideways or higher March through August. We expect that 2012 will play out similarly to the last three years. That said, it will be important to monitor the YoY change in the rolling NSA series going forward. If we continue to see the rate of improvement slow, this could offset some of the effects of the positive seasonal distortion.

 

Another important relationship to monitor is that of the S&P and claims. These two series move together over the long-term but tend to see short-tern divergences. The current level of claims now implies an S&P level of 1348, which is 7.1% lower than the most recent S&P print.

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Seasonality Claims

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Non farm Seasonality

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Raw

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Rolling

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - NSA

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - NSA rolling

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - S P

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Fed
 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - YoY

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Initial Unemployment Claims Recessions

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Rolling Claims Line 

 

Joshua Steiner, CFA

 

Robert Belsky


INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET

Takeaway: Claims retrace some of the prior week's improvement. Meanwhile, the market continues to look frothy based on the current labor market.

Jobless Claims - Small Step Backward

Initial claims rose 8k last week to 367k but after incorporating the upward revision to the prior week's data, rose only 4k. Rolling claims were unchanged at 375k. On a non-seasonally adjusted basis, claim were 5k lower than the prior week, ending at 299k. Last week, the rolling NSA YoY series weakened from -7.7% YoY to -7.3% YoY. The rate of improvement in claims has been slowing since early 2010. We like to look at the rolling NSA series on a YoY basis because it removes the effects of seasonality. For reference, this morning's print was slightly lower than consensus expectations for 370k.

 

Overall:

Over the coming months we expect jobless claims to benefit from distortive seasonality tailwinds. In the first chart below we show how the claims series trends lower from September to February and goes sideways or higher March through August. We expect that 2012 will play out similarly to the last three years. That said, it will be important to monitor the YoY change in the rolling NSA series going forward. If we continue to see the rate of improvement slow, this could offset some of the effects of the positive seasonal distortion.

 

Another important relationship to monitor is that of the S&P and claims. These two series move together over the long-term but tend to see short-tern divergences. The current level of claims now implies an S&P level of 1348, which is 7.1% lower than the most recent S&P print .

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Seasonality Claims

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Non farm Seasonality

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Raw

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Rolling

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - NSA

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - NSA rolling

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - S P

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Fed

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - YoY

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Initial Unemployment Claims Recessions

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Rolling Claims Line

 

Yield Spreads

The 2-10 spread rose  3 bps WoW. 4QTD, the 2-10 spread is averaging 1.39%, which is up 2 bps basis vs 3Q12.  

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - 2 10

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - 2 10 QoQ

 

Financial Subsector Performance

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

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Subsector Performance

 

INITIAL JOBLESS CLAIMS: OUR WEEKLY TAKE ON THE STATE OF THE LABOR MARKET - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 

 

 

 


STRONG VISITATION TO START OFF GOLDEN WEEK

Takeaway: Mass visitation looks good - positive for Macau operators, particularly LVS.

While September finished with a dud, Golden Week visitation is way up over last year.

 

 

The Macau stocks may react initially to September being up "only 12%" but it looks like October is off to a strong start.  As reported in the press today, Macau September GGR fell short of the 15-17% Street expectations due to late month softness.  We suspect hold played a role.

 

However, despite a tough comparison, 2012 Golden Week visitation is off to a blazing start.  Total visitation from Oct 1-3 is up 36% YoY while visitation from mainland China grew 15%.  In October 2011, total visitation and mainland Chinese visitation were up 14% and 31%, respectively.  Higher Mass visitation particularly benefits Mass-centric properties such as LVS's Venetian and Sands Cotai Central and MPEL's City of Dreams and Galaxy Macau.

 

STRONG VISITATION TO START OFF GOLDEN WEEK - GGR


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.49%
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