prev

Dicey Spot: SP500 Levels, Refreshed

Takeaway: Rolling the dice is not part of the process.

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)

 

What worked yesterday (and for the last month and a half) isn’t working today. TRADE or TREND?

 

I don’t know. All I know is that tomorrow is a big political storytelling day with a made-up government number slapped on top of it as we head into the home stretch of this epic Obama/Romney election. I have no idea who is going to win that either.

 

What I do know is that, across our core risk management durations, here are the lines that matter to me most:

 

  1. Immediate-term TRADE resistance = 1431
  2. Intermediate-term TREND support = 1419
  3. Immediate-term TRADE support = 1388

 

In other words, 1 is your refreshed Risk Range (on our immediate-term TRADE duration) and 1419 is proving to be a pretty good trigger line for beta (which evidently moves both ways).

 

A close above 1419 would be bullish; a close below it bearish. After the next 2 market closes, we’ll let the market tell us which way to lean.

 

For now, the easiest thing to do is take down gross exposure. Rolling the dice is not part of the process.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dicey Spot: SP500 Levels, Refreshed - SPX


HedgeyeRetail: October SSS = Shrinking Sales Sample

Takeaway: This morning’s Retail Sales are littered with one off company specific callouts and little by way of broader themes.

This morning’s Retail Sales are littered with one off company specific callouts and little by way of broader themes. For the second month in a row, a major retailer (KSS) is announcing that it will no longer participate in the monthly SSS exercise confirming its increasing irrelevance. Over the last two months, the exit of both TGT and KSS represents over 30% of last year’s SSS sample that has now withdrawn. With top-line results increasingly stressed, we expect additional defections in coming months.

 

All in October results came in marginally better than last month with 12 companies coming in ahead of expectations compared to 5 misses. Here are a few callouts worth noting:

  • With retailers and consumers alike still trying to measure the impact of Sandy, few details were offered.
  • The deviation of beats and misses were relatively tight with JWN and TJX the exception coming in well above expectations.
    • At JWN, the Rack continues to succeed with comps up +10.5%
  • One of the more notable callouts is the deviation between TJX (beat) and ROST (miss) given persistent strength in the off-price channel.

    • While momentum behind ROST has already started to fade, we expect today’s results to accelerate recent weakness.
    • At TJX, Europe comps up +11% confirm favorable weather helping to drive sales overseas, which is key differentiator between the two off-pricers.
  • KSS surprised to the upside after abysmal September results. In fact, when looking at the two months in aggregate, KSS’ hit its Q3 comp outlook. A notable outcome given weakness headed into quarter-end particularly given what have been very low expectations for the retailer and its inability to capitalize on share gifted from JCP. November results will be closely monitored re the sustainability of this improvement.
  • GPS results will have investors focused on the ~10% EPS 3Q beat, but a look under the hood reveals a major slowdown at Old Navy despite the most favorable setup of the year. We think GPS’s upward trajectory is increasingly unsustainable. Old Navy and Gap Domestic have benefitted significantly from JCP. Now GPS has to anniversary it.
  • TGT missed perpetuating what now marks three consecutive sequential months of decelerating underlying 2-year comp trends. With the setup getting tougher through year-end before it eases in early 2013, near-term results will remain pressured and reliant largely on cost management to drive earnings performance.
  • With underperformance at both Old Navy and ROST, we will be keeping a close eye on this development as two of the greatest beneficiaries of JCP’s share shift…dare we say an incrementally positive data point for JCP?

 

HedgeyeRetail: October SSS = Shrinking Sales Sample - OctSSS

 

HedgeyeRetail: October SSS = Shrinking Sales Sample - GPS Comps

 






















INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY

Takeaway: Claims moved lower as our seasonality model anticipated. Real labor market conditions were slightly less positive, however.

***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.***

 

 

Perceived Employment Progressing As Expected

This morning's 9k decrease in initial jobless claims (seasonally-adjusted) keeps the series on track with the improvement we expect to see from September through February. The slope is flatter thus far than the six-month averages seen over the past few years, but in looking at the prior years the improvements have tended to accelerate over the last four months (November through February) relative to September/October. While this is our baseline assumption, we would emphasize that the forward path hinges largely on the resolution of the Fiscal Cliff, which we regard as being closely tied to the outcome of the election.

 

What's Really Going On?

We're more interested in the rate of YoY change in the rolling NSA series, as that's the better indicator of how the labor market is really doing. That measure showed slight moderation WoW to -8.8% YoY vs. -9.1% in the preceding week (a lower number reflects better health in the labor market). Two weeks ago, the YoY change was -8.9%.  As such, the series is slightly worse WoW, but we tend not to put too much emphasis on a single week. 

 

The Data  

Last week, seasonally-adjusted initial jobless claims fell 6k to 363k. However, after incorporating the 3k upward revision to the prior week's data, claims fell by 9k. Rolling claims fell 1.5k WoW to 367k. On a non-seasonally adjusted basis, claims fell 5k to 340k.

 

Separately, the divergence between the S&P 500 and initial jobless claims has largely disappeared over the past month with the sell-off in equities and the improvement in claims, suggesting we're much closer to fair value at these levels.

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 1

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 2

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 3

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 4

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 5

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 6

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 7

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 8
 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 9

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 10 

 

Joshua Steiner, CFA

 

Robert Belsky


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY

Takeaway: Claims moved lower as our seasonality model anticipated. Real labor market conditions were slightly less positive, however.

Perceived Employment Progressing As Expected

This morning's 9k decrease in initial jobless claims (seasonally-adjusted) keeps the series on track with the improvement we expect to see from September through February. The slope is flatter thus far than the six-month averages seen over the past few years, but in looking at the prior years the improvements have tended to accelerate over the last four months (November through February) relative to September/October. While this is our baseline assumption, we would emphasize that the forward path hinges largely on the resolution of the Fiscal Cliff, which we regard as being closely tied to the outcome of the election.

 

What's Really Going On?

We're more interested in the rate of YoY change in the rolling NSA series, as that's the better indicator of how the labor market is really doing. That measure showed slight moderation WoW to -8.8% YoY vs. -9.1% in the preceding week (a lower number reflects better health in the labor market). Two weeks ago, the YoY change was -8.9%.  As such, the series is slightly worse WoW, but we tend not to put too much emphasis on a single week. 

 

The Data  

Last week, seasonally-adjusted initial jobless claims fell 6k to 363k. However, after incorporating the 3k upward revision to the prior week's data, claims fell by 9k. Rolling claims fell 1.5k WoW to 367k. On a non-seasonally adjusted basis, claims fell 5k to 340k.

 

Separately, the divergence between the S&P 500 and initial jobless claims has largely disappeared over the past month with the sell-off in equities and the improvement in claims, suggesting we're much closer to fair value at these levels.

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - seasonality

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - Raw

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - Rolling

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - NSA

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - NSA rolling

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - S P

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - Fed

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - Recession

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - Rolling Linear

 

Yield Spreads

The 2-10 spread fell 9 bps WoW to 141 bps. So far 4QTD, the 2-10 spread is averaging 1.45%, which is up 8 bps relative to 3Q12.  

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 2 10

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - 2 10 2

 

Financial Subsector Performance

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

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - Subsector performance

 

INITIAL JOBLESS CLAIMS: PERCEIVED PROGRESS CONTINUES WHILE REAL PROGRESS MODERATES SLIGHTLY - Companies

 

Joshua Steiner, CFA

 

Robert Belsky


BKW: Too Big To Fix?

Burger King (BKW) recently reported 3Q12 earnings and while it beat on the EPS estimates, it’s clear the company has a lot of work to do going forward. With competition from the likes of everyone from Wendy’s (WEN) to McDonald’s (MCD) to even Chipotle (CMG), BKW needs to grow SSS aggressively in the US and Canada while focusing on its four pillars strategy that involves Image, Menu, Marketing Communications and Operations. We consider this a problem that may be too big to fix.

 

BKW: Too Big To Fix?  - bkw1

 

BKW: Too Big To Fix?  - bkw2

 

Hedgeye Restaurants Sector Head Howard Penney laid out BKW’s future in our sales note this morning:

 

The performance in sales trends is what carries most weight for the Burger King investment thesis.  On that metric, the outlook is uncertain.  In the U.S., two-year average trends accelerated by 100 basis points, sequentially, from 2Q12 to 3Q12.  The U.S. constitutes almost 60% of the store-base.  As the charts below highlight, consensus is expecting a sharp acceleration in trends during the first half of 2013.  Holding current two-year trends level suggests negative same-restaurant sales trends for 1H13


Tech Mate

Client Talking Points

Tech Mate

Remember back in 2011 where you could be a great stockpicker by purchasing shares of Apple (AAPL) and letting them ride higher and higher like a balloon jammed to the gills with helium? Not the case these days, especially with management shakeups and disappointing price points on new products. Technology is performed awful in October as one of the worst sectors out there. The XLK fell a whopping -6.3% and Apple makes up a big portion of that ETF. So just think to yourself, with companies like Intel (INTL) and others missing on earnings, do you really think tech is still hot?

Asset Allocation

CASH 58% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 21% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
TCB

After a long downward slide, TCB has finally turned the corner. The margin has stabilized after the balance sheet restructuring. Loans are growing thanks to the equipment finance business. Non-interest income is more likely to go up than down going forward, a reversal from the past 18 months. Credit quality has a tailwind from a distressed housing recovery in TCB’s core markets: Minneapolis, Detroit and Chicago. On top of this, the CEO, Bill Cooper, is one of the oldest regional bank CEOs, which raises the probability that the bank will be sold. Expectations are bombed out at this point, so we think it’s time to move from bearish to bullish on TCB.

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.

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.

Three for the Road

TWEET OF THE DAY

"The irony is exquisite: Obama does his job for a couple days and everyone yells: Game changer!!!" -@JonahNRO

QUOTE OF THE DAY

"So much of what we call management consists in making it difficult for people to work." -Peter Drucker

STAT OF THE DAY

Pfizer's profits fall -14% thanks to generic Lipitor.


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

next