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INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS?

Takeaway: We continue to expect seasonality tailwinds through February, but are we also seeing some early signs of trouble in the real labor market?

Seasonally-adjusted vs. Non-seasonally-adjusted

Seasonally-adjusted initial jobless claims fell by 8k last week to 355k. There was no revision to the prior week's data. On a 4-week rolling basis, claims rose 3.25k to 371k. We know that last week's print was affected by Hurricane Sandy, but based on comments from Labor Department officials, we don't know whether the affect was positive or negative. Some states saw an increase in claims because Sandy left them out of work, while in other states there was such widespread damage that it inhibited people's ability to file for new claims.

 

The non-seasonally adjusted data would be subject to the same Sandy distortion. This week's non-seasonally adjusted claims were higher by 15k. We like to look at the YoY change in rolling NSA claims for a more accurate read on the trends. This week that YoY improvement slowed to -6.9% from the prior two readings of -8.8% and -9.1%. This slowdown is worth keeping an eye on, as it may be an early indication that the real labor market is starting to show signs of weakening. However, we would emphasize that the distortions from Sandy have us cautious about putting too much emphasis on the numbers at this time.

 

On a seasonally-adjusted basis, we expect to see claims continue to benefit from a seasonality tailwind through February, consistent with the last three years. We illustrate these various dynamics in the charts below.

 

It's also worth briefly noting that strength in last month's non-farm payroll report is a statistical aberration. We note the difference in the slope of this year vs the past three. While it's difficult to forecast any one data month accurately, we would think it quite likely that the November non-farm payroll number is down MoM vs. October.

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Seasonality

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - NFP

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Raw

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - rolling 2

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - NSA

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Rolling NSA

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - NSA claims YoY

 

In the chart below we're profiling the YoY change in rolling NSA initial jobless claims series. Note the similarity of the slope of the trendline from last year vs. this year, and note the upward move of the last data point well above the trendline. While there have been comparable moves earlier this year, they were generally in response to aberrations in the year-earlier data, whereas this week's move is against a relatively normalized baseline.

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 52 week nsa pct chg

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - recessions

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - rolling linear

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - S P

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Fed and Claims

 

Yield Spreads

The 2-10 spread fell 4.5 bps WoW to 137 bps. So far 4QTD, the 2-10 spread is averaging 1.45%, which is up 8 bps relative to 3Q12.  

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 2 10

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 2 10 QoQ

 

Financial Subsector Performance

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

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Subsector Performance

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 


November ECB Presser: No Surprises

Takeaway: OMTs still on hold; nothing new from Draghi

Positions in Europe: Long German Bonds (BUNL)

 

After ECB President Mario Draghi made his big central bank splash in September by introducing the Outright Monetary Transactions (OMTs) program to buy “unlimited” sovereign bonds of Eurozone members at the Bank’s discretion, little has been indicated about its use. And today’s conference provided no further color. 

 

There were no major changes to the economic outlook versus the October meeting. In December, the Bank will release new economic projections. Here we think GDP, in particular, will be revised lower, in step with the European Commission’s autumn Eurozone growth projections released yesterday: -0.4% in 2012; -0.1% in 2013; and +1.4% in 2014.

 

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

 

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

 

November ECB Presser: No Surprises - 22. rates

 

The Q&A was filled with questions on if and when Spain should ask for a bailout and how the OMTs could be coordinated with such an announcement. Draghi was once again tight lipped on both fronts, saying that it’s up to the individual Eurozone governments to request a bailout and that the Bank stands ready to use OMTs (of course under conditional requirements).

 

Overall, Draghi once again demonstrated a comfortable position with the sheer announcement of the OMTs program to reduce risk across the region. While peripheral yields have come in over recent weeks versus summer highs, we still see broader risks from the sovereigns and banks of Spain, Italy and France and view the weak credit lines to households and corporations as evidence of a very clogged credit environment that should prolong a return to real growth.

 

November ECB Presser: No Surprises - 22. loans

 

Matthew Hedrick

Senior Analyst


MACY'S: More Downside Than Upside

We’re seeing more downside in Macy’s (M) than upside these days. The company is comping well right now thanks to the success of My Macy’s and the Millennial Stores. The stock is trading at 5.5x EBITDA today but could be seen as trading at 8.5x earnings if you factor in things like gross margin leverage. Would you really pay 8.5x/5.5x for a department store stock assuming that everything goes according to plan without any hiccups? That’s a risky bet considering that no one can keep comping up forever and JCPenney (JCP) is a credible threat to Macy’s. Hence, we’re increasingly bearish on the stock moving forward in Q4.

 

MACY'S: More Downside Than Upside - m2

 

From Retail Sector Head Brian McGough:

 

This a business that has no square footage growth, no ‘birthright to comp’ in its core, struggles to consistently earn its cost of capital (what happens when lease accounting rules change and M has to account for its property?), and has zero competitive advantage in the core area that will be driving incremental consumer purchases for generations to come – dot.com.”


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 80.28%
  • SHORT SIGNALS 78.51%

Growth In Macau

Gross gaming revenue (GGR) was up +3.5% in Macau for October, at the high end of our forecast for the month. VIP hold was down but mass volume grew. We think that November growth will pick up with 7-14% growth year-over-year and will accelerate into December. So with Macau volumes and revenues picking up, who’s the winner? Las Vegas Sands (LVS). They put up the best GGR growth and largest market share on a month-over-month basis. LVS reached a three year high in market share on Mass revenue and a 2 year high in slot market share. LVS remains one of our top long ideas.

 

On the other side, Wynn Resorts’ (WYNN) market share set an all-time low of just 10.1% because of lower hold. A freidnly reminder: house hold is the measure of the amount of money a casino table game keeps from the total amount of money that is dropped into the game's cash box. MGM and SJM also had low hold. As for Galaxy and MPEL, they put up solid mass growth yet again.

 

Growth In Macau  - image002

 

Growth In Macau  - image003


MORNING INVESTMENT CALL Q&A: Risky Markets

In today's Morning Investment Call, we discuss yesterday’s selloff in the market, our macro themes of Earnings Slowing and Growth Slowing, and the inherent risk associated with the fiscal cliff. Remember: it’s all about trading the risk and the range of the market. Stay within your limits and you’ll be fine. You can listen to the Q&A from the call below.

 

 


Three Big Themes

Client Talking Points

Three Big Themes

Now that we can put the political madness of the election behind us, let’s focus on our three macro themes for Q4 and beyond. We’re well into earnings season and our theme of #EarningsSlowing continues as company after company either misses Street expectations or lowers guidance. The commodity bubble given to us courtesy of the Fed is bursting at the seams with commodities down -9.3% since the Bernanke Top (September 14). Lastly, there is the fiscal cliff. It has been said that Republicans are reaching across the aisle and offering compromise on taxes in order to fix this mess, but more than likely, the two sides will bicker until the 11th hour and will kick the can down the road yet again. 

Market Breakdown

Yesterday’s big selloff can be attributed to the election results. Or the trouble in the Eurozone. Really, it can be blamed on anything. That’s how it works. If your strategy doesn’t work, just find someone or something to blame. It’s certainly worked out well for Old Wall. With the pop in the futures this morning, we’ll likely see some upside early on in trading; what really matters is the risk and the range. If you stick to your levels and trade within them, you’ll do just fine. That’s how proper risk management works as opposed to closing your eyes and throwing darts at sheets of paper with tickers written on them.

Asset Allocation

CASH 55% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 24% 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 enjoys 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

“scheduled a meeting at 3pm - people complained because lunch time is from 2 to 4pm#spainisdifferent” -@brilldisruptive

QUOTE OF THE DAY

“You must first have a lot of patience to learn to have patience.” -Stanislaw J. Lec

STAT OF THE DAY

US jobless claims fall by 8000 to 355,000


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