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Ni Hao Dwayne Wade

Takeaway: Nike's Converse division lost Dwayne Wade in a huge win for Chinese footwear brand Li Ning.

Nike's Converse division lost Dwayne Wade in a huge win for Chinese footwear brand Li Ning.

 

An important distinction is that if Nike really wanted to keep Wade, it would have kept him. They have the deepest pockets.

 

But this one is really surprising. Wade is what's known as a 'crossover athlete' in that he can be on the cover of GQ and SI in the same month. He appeals to most target groups -- white, black, hispanic, tall, and short (height is a factor in endorsements). 

 

Our sense is that he wasnt getting the love he wanted at Converse, which is a division that Nike lets operate on its own. It does not have access to all the same technology as Nike or Jordan. That could have changed for Wade, but Li Ning likely came on too hard and heavy for Nike to react.

 

It's a tough loss. Hey, at least they've still got LeBron and Bosch.

 

Ni Hao Dwayne Wade - wade


The Spaghetti Western of Employment

Takeaway: The unemployment rate is down to 7.8% driven by participation, or lack thereof.

As many of you know, my colleagues and I at Hedgeye are fans of the legendary actor Clint Eastwood.  We say this despite his less than stellar performance at the Republican convention.  One of his most well known movies is The Good, the Bad and the Ugly.  In terms of film genre, this movie is in the category of Spaghetti Western.

 

The title of the movie itself is likely the best description of the employment data today – which we will touch on in more detail shortly – but the genre of the movie probably best describes the manic commentary around this report.  Republicans from Jack Welch on down are claiming there is some grandiose manipulation of the numbers ahead of the election. 

 

Meanwhile, Democrats are using this as a data point that validates the Obama economic plan and justifies his re-election.  Just as we should be a little reticent letting Italians make Westerns (or Canadians make operas for that matter), let’s take a look at this report outside of the partisan lens.

 

The Good

 

The headline unemployment is positive for Obama and perhaps positive on the margin for confidence (very marginally). This comes despite consensus misses across the board on month-over-month non-farm, private and manufacturing payrolls, but because the focus for much of the punditry is on the actual rate.  On the positive, total employed did rise by 873,000 which is the first meaningful increase in three months (although 600,000 of these were part-time jobs).

 

At 7.8%, the unemployment rate is now the same as when Obama took office and down from the 8.1% rate of August.  It also deflates, at least partially, a key refrain from Romney’s debate strategy which is to highlight that unemployment has been above 8% for the duration of the Obama Presidency.  The political analysis from the manic media on the jobs report is as simplistic as can be expected with the headline on USA Today currently being a prime example:

 

“Political analysis: Jobs report boosts Obama”

 

We will go into detail shortly as to why this employment number is actually far from stellar, but the sentiment is what it is and this will marginally benefit Obama.  This is already being reflected on Intrade where the Obama contract has rallied about four points from 65 to 69.

 

The Bad

 

In the bad category, there are a number of favorable items that were one time in nature that may have made this number look better than reality.  Specifically, the government uses a seasonal adjustment that we have touched on numerous times.  As our Financials Sector Head Josh Steiner wrote last week:

 

“We've harped on seasonality a lot, but to again reiterate, we think the two charts below speak for themselves. They illustrate quite plainly that in the last three years, ALL improvement in both initial jobless claims and nonfarm payrolls occurs in the September through February period while March through August stagnates or deteriorates. This seasonality distortion will again be present this year and next year.”

 

The point is that there is some manipulation in these numbers.  This isn’t a partisan fact, but simply something we’ve observed based on looking at this data for the past three years.  So, this “positive” report shouldn’t surprise anyone or be considered a panacea of economic recovery.  The chart below outlines this seasonality.

 

The Spaghetti Western of Employment - 1

 

The Ugly

 

The ugly is related to not just this jobs report but the economic environment in the U.S. that has Americans leaving the workforce in mass.  In the chart below we’ve adjusted today’s labor report for the 10-year average labor force participation rate (LFPR).  Given this analysis, the unemployment rate in September would have been 10.8%.  This would have been a decent improvement over the adjusted August number of 11.3%, but is still very elevated.

 

Interestingly, if you adjust the headline figure for the LFPR on Obama’s first day in office, the SEP unemployment rate would have been 11.1% – substantially elevated from the comparable 7.8% figure he inherited from Bush. What this suggests is that, over the last four years, President Obama has seen the U.S. unemployment rate tick up +330bps when accounting for all the disgruntled civilians who’ve completely given up looking for work since the president took over the leadership reigns of the U.S. economy.  The first chart below shows the trend of the participation rate over the past decade, which is down and to the right.

 

In the short run, this report will likely be positive, at least for the President’s re-election chances.   In the long run, U.S. employment remains solidly in the bad to ugly category. 

 

 

Daryl G. Jones

Director of Research

 

Darius Dale

Senior Analyst

 

The Spaghetti Western of Employment - 2

 

The Spaghetti Western of Employment - 3

 

The Spaghetti Western of Employment - 4

 


XLE: Bigger Than Brent

The chart essentially speaks for itself: Earlier this year, when Brent Crude oil was busy ripping to the upside, it had the edge over the broader Energy Select Sector SPDR ETF (XLE). As the dollar got crushed by Bernanke heading into the late summer and fall, diversifcation became essential; the XLE performed better and as we've seen this week, oil continues to get crushed. 

 

XLE: Bigger Than Brent - image001


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BLS DATA IMPLYING SLUGGISH CASUAL DINING COMPS

Takeaway: Knapp Track Casual Dining sales track BLS employment growth data for the full-service industry. We are bearish on $DRI, $BLMN, $TXRH & $BWLD

Employment data released this morning by the Bureau of Labor Statistics suggest near-term strength for Quick Service and Fast Casual trends.  The outlook for Casual Dining seems less positive.  Employment trends within the industry suggest a possible sequential deceleration in same-restaurant casual dining sales. Knapp Track Casual Dining sales data track BLS employment growth data for the full-service and leisure and hospitality industries.  Within casual dining, we are bearish on DRI, BLMN, TXRH, and BWLD.

 

BLS DATA IMPLYING SLUGGISH CASUAL DINING COMPS - knapp vs leisure   hospitality1

 

BLS DATA IMPLYING SLUGGISH CASUAL DINING COMPS - knapp vs full service emp growth1

 

 

Employment by Age

 

Employment growth among the 20-24 YOA cohort, which has been highlighted by many QSR and fast casual management teams as an important source of demand, accelerated to 3% year-over-year in September from 1.3% in August.  Employment growth among 55-64 year olds decelerated, sequentially, in September to 3.6% from 4.4% in August.  If this deceleration were to continue, it would be a negative signal for casual dining sales.

 

BLS DATA IMPLYING SLUGGISH CASUAL DINING COMPS - Employment by Age

 

 

Industry Hiring

 

The Leisure & Hospitality employment data, which leads the narrower food service data by one month, suggests that employment growth in the food service industry may have tracked sideways-to-down in September.  On a sequential basis, the Leisure & Hospitality employment data registered a month-over-month gain of 11k (second chart below).   As the first chart of this post illustrates, the trend of employment growth within the Leisure & Hospitality seems to be stabilizing at roughly 2%. 

 

Sequential Moves

  • Leisure & Hospitality: Employment growth at +2.3% in September, down 7 bps versus August
  • Limited Service: Employment growth at 3.9% in August, down 15 bps versus July
  • Full Service: Employment growth at 2.5% in August, up 13 bps versus July

BLS DATA IMPLYING SLUGGISH CASUAL DINING COMPS - employment growth

 

BLS DATA IMPLYING SLUGGISH CASUAL DINING COMPS - leisure   hospitality

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


Jobs Report: Fuzzy Math?

Takeaway: Unemployment is likely in the 10.8-11.1% range, not 7.8%. The government needs to go back and check the math it's using.

Today’s jobs numbers don’t add up when we take a closer look at what’s been going on during the last four years under the Obama administration. The headline today was that unemployment rate was 7.8%, a suspiciously low number that any American would second guess. Stripping away the government’s window dressing, we believe that the number is somewhere in the range of 10.8-11.1% depending on the methodology used.

 

 

Jobs Report: Fuzzy Math?  - unemployment1

 

 

We continue to think the headline US unemployment rate is being artificially deflated through generationally-low labor force participation rates. Hedgeye Senior Analyst Darius Dale explains why the numbers that came out today don’t display the true state of America’s jobs and employment landscape:

 

If you adjust the headline figure for a 10yr average LFPR, the US unemployment rate for September would have been 10.8% in September; a decent improvement over the 11.3% rate in August, but still elevated nonetheless – particularly relative to the elevated 8.9% adjusted rate Obama inherited from President Bush. 

 

Interestingly, if you adjust the headline figure for the LFPR on Obama’s first day in office, the September unemployment rate would have been 11.1% – substantially elevated from the comparable 7.8% figure he inherited from Bush. What this suggests is that, over the last four years, President Obama has seen the US unemployment rate tick up 3.3% when accounting for all the disgruntled civilians who’ve completely given up looking for work since the president took over the leadership reigns of the US economy.”

 

Take a look at the two charts below for a visualization of the range in which we believe the unemployment rate truly lies.

 

Jobs Report: Fuzzy Math?  - unemploymentA

 

Jobs Report: Fuzzy Math?  - unemploymentB

 

While this is not the appropriate setting to debate whether or not this material erosion in the US labor market is A) a function of President Obama’s failed economic policies or B) a function of the failed Policies To Inflate out of Washington D.C. in general, we can be sure the dismal state of the US labor market should continue to give Mitt Romney the upper hand in any economic exchange. The next two presidential debates are October 16 and October 22; the former will be Romney’s best chance to capitalize on his momentum from Wednesday night’s big win, as it focuses on both domestic and foreign policy, rather than just the latter as the October 22 debate does.

 


COH: Anatomy Of A Short

Hedgeye Retail Sector Head Brian McGough has delivered a 9-point breakdown of fundamentals and durations of Coach (COH). We think Coach as a brand is just fine, but we are keen to short the stock in the immediate-term TRADE and intermediate-term TREND durations. With 8 out of 9 negatives, this image speaks for itself.

 

COH: Anatomy Of A Short  - coachCHART


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