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HEI: 64.1% Chance of Obama Reelection

The second debate wasn’t a win for Obama, but he certainly held his own against Mitt Romney in comparison to the first debate. For the week ending October 17, the President’s odds of being reelected increased 10 basis points to 64.1%. As Romney continues to strengthen in the polls, that number could easily come down in the weeks leading up to the election.

 

Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.

 

Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.

 

President Obama’s reelection chances reached a peak of 64.5% on September 24, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.

 

HEI: 64.1% Chance of Obama Reelection - HEI


INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE

Takeaway: A missing state being double counted is most likely to blame for the moonshot increase in claims this morning. Expect a reversal next week.

***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.***

 

 

Did the Dept of Labor Double Count the "Missing State"?

This week's 49k WoW increase in initial claims is suspicious, just like last week's 28k decline. However, we suspect that the "missing state" from the previous week's data may have been double-counted this past week. Assuming that there was in fact a missing state, it's odd then that the previous week was not significantly upwardly revised. The number was upwardly revised by just 3k from 339k to 342k. It appears that instead, that missing state just lumped two weeks of data into this most recent week, which explains the moonshot increase of 49k this week. To be fair, we haven't seen anything to confirm our theory, but we see no other plausible explanation. As such, we would expect a roughly 25k decrease next week to around 363k, which is essentially in-line with the rolling average of late. For reference, it's also possible that Columbus Day (last Monday) caused some further dislocation in the series.

 

The bottom line is that the trend in jobless claims, i.e. the 4-week rolling average, is still trending lower, as we show in the first chart below. Notice that even after including this morning's huge increase in claims, the rolling average has only moved back to its trendline, which still has a negative slope. This is consistent with our thesis that there's a tailwind distortion in the data that will persist through February, 2013, making the labor market and economy appear stronger than they really are before reversing course in March 2013 and deteriorating through August 2013.

 

The Data  

Initial claims rose 49k last week to 388k (but rose 46k after a 3k upward revision to the prior week's data). Rolling claims rose 0.75k WoW to 365.5k. On a non-seasonally adjusted basis, claims rose 29k to 359k.

 

Hedgeye Take 

The YoY change in the rolling NSA series was roughly flat at -10.0%. This compares with -10.3% in the prior week and -7.4% in the week before that. This larger YoY improvement in the rolling non-seasonally adjusted data is meaningful as it indicates there is real improvement currently occurring in the employment environment.

 

Lastly, the S&P and claims diverged again this week. For reference the current level of claims would imply an S&P level of 1372, which is 6% lower than current levels.

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 1

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 2

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 3

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 4

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 5

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 6

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 7

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 8
 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 9

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 10

 

Joshua Steiner, CFA

 

Robert Belsky


Chinese Oil Imports Down Again

China’s imported less crude oil in September 2012 than it did a year ago. It imported 20.08mm tonnes of crude, which is a -1.8% drop on a year-over-year basis but a sharp improvement from the -12.5% drop that occurred in August. Since data on a month-to-month basis is quite volatile, we look at it on a three month moving average. The three month average for July, August, and September is -3% year-over-year – the lowest rate of change since the financial crisis. We maintain that the slowdown in China is not yet reflected in the oil price.

 

Chinese Oil Imports Down Again  - china normal


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INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE

Takeaway: A missing state being double counted is most likely to blame for the moonshot increase in claims this morning. Expect a reversal next week.

Did the Dept of Labor Double Count the "Missing State"?

This week's 49k WoW increase in initial claims is suspicious, just like last week's 28k decline. However, we suspect that the "missing state" from the previous week's data may have been double-counted this past week. Assuming that there was in fact a missing state, it's odd then that the previous week was not significantly upwardly revised. The number was upwardly revised by just 3k from 339k to 342k. It appears that instead, that missing state just lumped two weeks of data into this most recent week, which explains the moonshot increase of 49k this week. To be fair, we haven't seen anything to confirm our theory, but we see no other plausible explanation. As such, we would expect a roughly 25k decrease next week to around 363k, which is essentially in-line with the rolling average of late. For reference, it's also possible that Columbus Day (last Monday) caused some further dislocation in the series.

 

The bottom line is that the trend in jobless claims, i.e. the 4-week rolling average, is still trending lower, as we show in the first chart below. Notice that even after including this morning's huge increase in claims, the rolling average has only moved back to its trendline, which still has a negative slope. This is consistent with our thesis that there's a tailwind distortion in the data that will persist through February, 2013, making the labor market and economy appear stronger than they really are before reversing course in March 2013 and deteriorating through August 2013.

 

The Data  

Initial claims rose 49k last week to 388k (but rose 46k after a 3k upward revision to the prior week's data). Rolling claims rose 0.75k WoW to 365.5k. On a non-seasonally adjusted basis, claims rose 29k to 359k.

 

Hedgeye Take 

The YoY change in the rolling NSA series was roughly flat at -10.0%. This compares with -10.3% in the prior week and -7.4% in the week before that. This larger YoY improvement in the rolling non-seasonally adjusted data is meaningful as it indicates there is real improvement currently occurring in the employment environment.

 

Lastly, the S&P and claims diverged again this week. For reference the current level of claims would imply an S&P level of 1372, which is 6% lower than current levels.

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Seasonality

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Raw2

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Rolling

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - NSA

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - NSA rolling

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - S P and Claims

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Fed

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - YoY

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Recessions

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Rolling Linear

 

Yield Spreads

The 2-10 spread rose 12 bps WoW to 153 bps. So far 4QTD, the 2-10 spread is averaging 1.44%, which is up 7 bps relative to 3Q12.  

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 2 10

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 2 10 QoQ

 

Financial Subsector Performance

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

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Subsector performance

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 

 


MGM UP ON THIS?

MGM China announced that they accepted a Land Concession Contract from the Macau government.  The stock is bid up 6% on this news.  We don’t think people fully understand the process of developing a new casino property in Macau.  MGM Cotai still needs to be formally Gazetted and then obtain a construction permit before the 3 year construction timeline can even begin.

 

Here is the timeline for Wynn Cotai:

 

Land Concession Contract:  Sept 12, 2011  

Formal Gazette approval:  May 2, 2012

Building Permit:  ?????

 

Wynn Cotai hasn’t even gotten its construction permit yet.  If this same timeline holds for MGM, then we should expect Gazetting in 8 months and who knows when for the building permit.  Thus, it should be at least a year and more likely two before construction can even begin and 4-5 years before the property would open.  Our original expectation on the timing of the MGM Cotai opening was 2017-2018 so today’s announcement doesn’t change that.

 

We would fade this news.


Chinese Surprise

CHINESE SURPRISE

 

 

CLIENT TALKING POINTS

 

CHINESE SURPRISE

Economic data from China has a lot in common with a fortune cookie: you never know what you’re going to get. China reported 7.4% GDP for Q3 and didn’t surprise on the upside. So far, this GDP number shows a slowdown when compared quarter-over-quarter and year-over-year. While the mainstream media believes that China’s slowdown has “bottomed,” the truth is that we are far from over with this mess. The slowdown will continue on and Chinese stocks can and will continue to get crushed.

 

 

COMMODITIES CORNER

In the US, you can get commodities right if you get the US dollar right. It’s a pretty simple correlation game that traders and investors play. When you look at China, you need to factor in supply and demand as well. Demand is very “toppy” right now for a lot of commodities and it’s not like China is going to have a second housing boom to drive demand for raw materials again. As we stated above, there’s still plenty of room for downside.

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                UP

 

U.S. Equities:   DOWN

 

Int'l Equities:   DOWN   

 

Commodities: DOWN

 

Fixed Income:  Flat

 

Int'l Currencies: UP  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

HCA HOLDINGS (HCA)

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

  • TRADE:  NEUTRAL
  • TREND:  LONG
  • TAIL:      LONG

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“Sell side previews of UA quarter seem to be coming out uniformly bullish.” -@HedgeyeRetail

 

 

QUOTE OF THE DAY

“There's a fine line between genius and insanity. I have erased this line.” -Oscar Levant

                       

 

STAT OF THE DAY

Morgan Stanley reports a net loss of $1 billion for Q3.


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 80.65%
  • SHORT SIGNALS 78.63%
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