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The Snuffleupagus Election

Takeaway: The data doesn’t support a Romney Presidency, but the likelihood of a Democratic sweep is likely now off the table.

You would basically have to be in a dark cave in Tora Bora to have not been exposed to the undue attention that has been attributed to Big Bird since the first Presidential debate.  The furor over the yellow feathered Sesame Street character was kicked off when Governor Romney indicated that he would end the funding for PBS, even though he personally likes Big Bird.

 

The President’s campaign has since grabbed on to that comment and created negative advertisements implying that Romney is focused on Big Bird when he should be focused on more critical issues, like the fat cat bankers on Wall Street.   As one advertisement said:

 

“Mitt Romney would have you think it’s not Wall Street you have to worry about, it’s Sesame Street.”

Naturally, this line of attack has led to an opening for the Romney camp as well.  On the stump, Romney has now been emphasizing that “the President has been focused on saving Big Bird for the last week when there are important issues to discuss”.

 

You gotta love politics!

 

Increasingly, we think Big Bird is much less relevant than Aloysius Snuffleupagus, more commonly known as Snuffy.  As many of you recall, Snuffy was a wooly mammoth without tusks or visible ears on Sesame Street.   For a long time, Big Bird was actually the only character that ever saw Snuffy.  On many levels, Snuffy may be a better metaphor for this election than Big Bird. 

 

To be clear, the debate, or the Big Bird event, has had a definite impact on the election.   The aggregate polls have swung almost 5 points towards Romney.  The bigger issue may well be that which is unsaid, or unseen, i.e. the Snuffy Factor.  In our view, this could be that the electorate is much more fickly than in prior years.

 

Ahead of the debate, we were increasingly convinced that Obama would win the election and that the concept of a Democratic sweep was seriously on the table.  Two weeks later, the numbers tell us a very different story.  We’ve outlined some of the key shifts below.

 

National Polls

 

In the Hedgeye National Poll aggregate, Romney has gone from being down -4 points prior to the debate to being up +1 post debate.  In the last six national polls taken, Romney leads in three, two are tied, and one has Obama ahead.  This is the first true lead of the race for Romney.  It is likely these national polls narrow again over the coming days.  Nonetheless, this type of a bounce from a debate is basically unprecedented.

 

The recent poll from TIPP is likely a poll that is very alarming to Democrats and also instructive as to the direction this race is going.  This poll has Romney up +5 among likely voters and has him up an amazing +20 points among independents.   A lead of this size is interesting in that the poll itself polled 39% Democrats and 31% Republicans, so it meaningfully oversampled Democrats.

 

The Snuffleupagus Election - 1

 

Electoral College

 

National polls are often leading indicators for state level polls and we have seen the follow through from Romney’s debate performance.   On September 19th when we held our election outcome call, Obama looked to have 237 Electoral College votes locked.  Currently, based on state level polls, Obama has 201 votes locked and Romney has 181 locked.  That leaves 156 Electoral College votes in the toss up category and a long road for either candidate to the 270 needed to become President.

 

As we have often said, the road to the Presidency goes through Ohio.  We’ve pasted a chart of Ohio polls below and the story in Ohio is similar to the national race, with the exception being that Obama leads narrowly.  Currently, Obama is +1.3 points in the poll aggregate, though at one point he was up close to +6 points.

 

The Snuffleupagus Election - 2

 

Electronic Markets

 

The electronic predictive markets are the one area in which Obama continues to hold his lead, although it has narrowed considerably. Currently, Obama is at 63% probability of retaining the Presidency.  Prior to the debate he was closer to 75%.  The Iowa futures market, the other prominent electronic predictive market, is also at a 63% probability that the Obama gets re-elected.

 

Economic Models

 

Our Hedgeye Election Indicator (HEI) is based on real time economic and market data and it still leans heavily towards Obama.  Similar to the electronic predictive markets, the HEI is currently at 64% and this is just 0.5% below its all-time high.  Intuitively this makes sense as the stock market has been strong and resilient.  Historically, a strong stock market would mean a strong economy, or economic recovery.  Currently, though, there is a disconnect between the stock market economy and the real economy and therefore Obama’s odds may be overstated on the HEI.

 

In aggregate, there is no doubt that the national race has shifted towards Romney.  It is clear that last week has gone from being a single debate to an event that has changed the course of the race.  Nate Silver, who in our view does an excellent job of analyzing polls, characterized it as follows:

 

“There is some spotty evidence that Mr. Romney’s bounce may have been as large as five or six points in polls conducted in the 48 hours after the debate, so perhaps the most recent data does reflect something of a comedown for him. But if his bounce started out at five or six points and has now settled in at three or four, that would still reflect an extremely profound swing in the race — consistent with the largest shifts produced by past presidential debates.”

 

So what is the unknown, or Snuffleupagus, nature of this race? Simply, that neither candidate has won over the electorate.  This fact clearly benefitted Romney in his decisive victory last week.  Conversely, it is also what leaves the door open for Romney.  Currently Obama’s approval rating is 49.8 based on the approval poll aggregate and his favorability rating is 50.8.  Meanwhile, Romney’s favorable rating is 48.5 despite his victory. 

 

Fickle is as fickle does in a Snuffleupagus Election.

 

Daryl G. Jones

 

Director of Research

 

 

 

 

 

 


Playing The Game Of Claims

Today’s initial unemployment claims data fell 28k to 339k, beating expectations but there was a caveat: one “large state” was excluded from this week’s report. This explains much of the week-over-week improvement and when this rogue state is included next week, we should see claims revert higher. 

 

Jack Welch has been vocal on Twitter in the past week, claiming that the Obama administration is manipulating jobs data in order to make the economy look better. Whether or not Welch is correct is irrelevant because more data keeps coming out that supports his theory.

 

For now, though, it appears that unemployment claims will continue to trend lower. 

 

Playing The Game Of Claims  - claims1

 

Playing The Game Of Claims  - claims2

 

Playing The Game Of Claims  - claims3


Is Apple King Of The Market?

Apple (AAPL) has been the stock market's darling for the last year or two as everyone pumps up rumors and awaits new iPhone updates. Recently, we've seen pullbacks in Apple and considering that the stock makes up about 1/5th of the S&P Tech sector, it can really move a market. So we've taken a look at Apple, the S&P Tech sector and the S&P 500 to see which has performed best on a year-to-date basis.

 

The S&P 500 is up +14.6% year-to-date with the XLK up +18.5% during the same time period. And AAPL? Up +56% during the same time. It appears that while AAPL has its ebbs and flows, it still can beat the broader market with ease.

 

Is Apple King Of The Market? - aapltech


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Getting Growth And Earnings Right

Hedgeye CEO Keith McCullough recently penned an article for MarketWatch.com discussing the stock market and our economy. His focus is on getting economic growth right and earnings right in order to pick stocks correctly. In line with our thesis of Earnings Slowing, Keith lays out the case for his bearishness on the market, which is comprised of three reasons:

 

1. Economic growth in the U.S. and globally continues to slow.

2. U.S. corporate earnings slowing is a major market risk.

3. Bernanke’s commodity bubble is primed to deflate.

 

You can read the full article at MarketWatch.com.


JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY

Takeaway: Claims helped by a missing state, but the trend lower remains in place. Dual tailwinds (claims & housing) remain the key Financials drivers.

***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.***

 

 

Our Take: Initial claims fell 28k last week to 339k (but fell 30k after a 2k upward revision to the prior week's data). Rolling claims fell 11.5k WoW to 364k. On a non-seasonally adjusted basis, claims rose 26k. News reports are indicating that one "large" state was excluded from this week's jobless claims report, explaining much of the WoW improvement. It's inclusion next week should see the series revert higher. That said, claims are still trending lower, driven by the seasonality dynamics we've often highlighted (see first chart below for detail). 

 

We follow claims and housing closely. Our basic thesis on capital-intensive Financial Services companies is that credit is always the most important swing factor, and the best leading indicators for credit's frequency and severity components are jobless claims (newly unemployed people are what drive new losses) and home prices (this is the primary collateral, hence it's relevance to severity). 

 

Aside from the seasonality component, which will remain a tailwind through February 2013, we like to cut through the noise by looking at the YoY change in the rolling NSA series. Again, largely attributable to the data anomaly of the missing state, there was a large improvement in YoY rolling NSA. The series improved sequentially from -7.4% to -10.3%. 

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 1

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 2

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 3

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 4

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 5

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 6

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 7

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 8
 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 9

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 10

 

Joshua Steiner, CFA

 

Robert Belsky


JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY

Takeaway: Claims helped by a missing state, but the trend lower remains in place. Dual tailwinds (claims & housing) remain the key Financials drivers.

Our Take: Initial claims fell 28k last week to 339k (but fell 30k after a 2k upward revision to the prior week's data). Rolling claims fell 11.5k WoW to 364k. On a non-seasonally adjusted basis, claims rose 26k. News reports are indicating that one "large" state was excluded from this week's jobless claims report, explaining much of the WoW improvement. It's inclusion next week should see the series revert higher. That said, claims are still trending lower, driven by the seasonality dynamics we've often highlighted (see first chart below for detail). 

 

We follow claims and housing closely. Our basic thesis on capital-intensive Financial Services companies is that credit is always the most important swing factor, and the best leading indicators for credit's frequency and severity components are jobless claims (newly unemployed people are what drive new losses) and home prices (this is the primary collateral, hence it's relevance to severity). 

 

Aside from the seasonality component, which will remain a tailwind through February 2013, we like to cut through the noise by looking at the YoY change in the rolling NSA series. Again, largely attributable to the data anomaly of the missing state, there was a large improvement in YoY rolling NSA. The series improved sequentially from -7.4% to -10.3%. 

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Seasonality

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Raw

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Rolling

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - NSA

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - NSA rolling

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - S P

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Fed

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - YoY NSA claims

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Recessions

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Rolling Linear

 

Yield Spreads

The 2-10 spread rose 3 bps WoW. 4QTD, the 2-10 spread is averaging 1.43%, which is up 6 bps basis vs 3Q12.  

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - 2 10 spread

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - 2 10 spread QoQ

 

Financial Subsector Performance

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

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Subsector performance

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 

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