prev

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION

Takeaway: New York, New Jersey and Pennsylvania account for 13% of the U.S. population, but accounted for 70% of the rise in initial claims 2 wks ago.

Quantifying NY, NJ and PA

Last week we urged investors to remain calm in anticipation of what we thought would be mean reversion over the coming two months. This morning's 41k decline in initial claims is a good down payment on that mean reversion. We got the state level data on a one week lag, so now we can evaluate where the surge in claims last week came from. In short, they came from NY, NJ and PA. To put some numbers around it, total non-seasonally adjusted initial jobless claims rose by 116,743 two weeks ago. New York accounted for 43,956 of that, or 37.7%, but New York represents just 6.2% of the U.S. population. New Jersey accounted for 31,094 of the increase, or 26.6%, but represents just 2.8% of the population. Pennsylvania, meanwhile had an increase of 7,037 initial claims, which was 6.0% of the total, despite being just 4.0% of the U.S. population. Taken together, these three states, NY, NJ and PA, accounted for 70.3% of the total increase in jobless claims two weeks ago following Hurricane Sandy, while those same three states represent 13.0% of the U.S. population. We think it's fair to say that Hurricane Sandy was clearly responsible for surge in claims. 

 

In the first chart below we update our plot of seasonally-adjusted claims comparing the effects of Hurricanes Katrina and Sandy. We expect the path of Hurricane Katrina will be a reasonable proxy for what to expect over the coming six weeks from Hurricane Sandy. 

 

The Data

Initial claims fell 29k last week to 410k (but fell 41k after the 10k upward revision to last week's data). Rolling claims rose 9.5k WoW to 396k. Non-seasonally-adjusted claims were lower by 81k WoW.

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Sandy Vs Katrina  2

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - claims by state

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - seasonality

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - NSA YoY linear

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Raw

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Rolling

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - NSA

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - rolling NSA

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - S P

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Fed

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Initial Claims YoY  2

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Recession

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Claims Linear

 

Yield Spreads

The 2-10 spread rose 7 bps WoW to 140 bps with all the improvement coming from the 10-year. The 2-year was flat. So far 4QTD, the 2-10 spread is averaging 1.43%, which is up 6 bps relative to 3Q12.  

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 2 10

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - 2 10 QoQ

 

Financial Subsector Performance

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

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - Subsector Performance

 

INITIAL CLAIMS: UPDATE ON SANDY'S MEAN REVERSION - companies

 

Joshua Steiner, CFA

 

Robert Belsky


The Right Time For Nike

 

As we continue to present snippets from our Best Ideas call that we held for our institutional clients last week, we move into the Retail sector with a long call on Nike (NKE). Retail Sector Head Brian McGough sees Nike as a great brand and great growth algorithm in the immediate-term TRADE duration. Gross margins have weighed on the stock in recent quarters but we believe that’s about to change. Current consensus expectations for Nike’s upcoming quarter are too low.

 

Nike’s numbers tell a great future growth story but importantly, their numbers will begin to improve immediately. Inventories are beginning to come down while gross margins improve and that’s something that gives us conviction when looking at NKE.

 

Watch the above video for McGough’s full take on Nike.

 


Tough Times

Client Talking Points

Question The Markets

The market has been quite unpredictable over the past week. The S&P 500 is down -1.7% November-to-date and there’s no distinct catalyst that moves the market each day. On top of it all, the lack of volume makes for big swings that are unjustified in a sense that don’t correlate with the underlying fundamentals of what’s truly happening right now. Growth is slowing, commodities are weakening and the Fiscal Cliff is still unresolved. If the latter can be addressed in a quick and decisive matter, then you can expect the market to cheerlead and head to the upside. 

Asset Allocation

CASH 49% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 6%
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.

IGT

There is improving visibility on 20%+ EPS growth with P/E of only 11x with better content leading to market share gains. New orders from Canada and IL should be a catalyst. Additionally, many people in the investment community are out in Las Vegas at the annual slot show (G2E) and should hear upbeat presentations by management.

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

“Hilsenrath lives!!” -@Commodity_Bull

QUOTE OF THE DAY

“Time is that quality of nature which keeps events from happening all at once. Lately it doesn't seem to be working.” -Anonymous

STAT OF THE DAY

Jobless Claims fell by 41,000 last week to 410,000.


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%

THE M3: COTAI BOUTIQUE CASINO; TAIWAN; CPI

The Macau Metro Monitor, November 21, 2012

 

 

COTAI BOUTIQUE CASINO NOT YET APPROVED: REPORT Macau Business

The PYE project has not obtained government approval for the inclusion of gaming facilities in its upcoming boutique casino hotel on Cotai.  

 

POTENTIAL INVESTORS INVITED TO SHARE OPINION ON MATSU CASINO PROJECT Taiwan Central News Agency

The Lienchiang County government is inviting investors interested in building a casino resort in Matsu to offer suggestions on the project and help finalize an investment assessment proposal to be sent to the Cabinet, Lienchiang County Commissioner Yang Sui-sheng said at a forum in Taipei.  Potential investors in the project are invited to submit their suggestions to the center within the next two months, said professor Liu Day-yang, leader of the research project.

The center is expected to send the report to the Lienchiang County government in late January to help it finalize the proposal to the central government, Liu said.  The forum was also attended by local and foreign companies interested in the casino project, including resort developer Weidner Resorts Taiwan, which has been keen to build a resort in Matsu that will include a casino.

 

A draft gaming law that will allow the construction of casinos is expected to be passed in the Legislature next June, said Cabinet Secretary-General Steven Chen.

 

 

CONSUMER PRICE INDEX FOR OCTOBER 2012 DSEC

Macau CPI for October 2012 increased by 5.19% YoY and and 0.10% MoM.



Strenuous Life

“We do not admire the man of timid peace. We admire the man who embodies victorious effort.”

-Theodore Roosevelt, 1899

 

As a Canadian immigrant with both an American made family and firm, Thanksgiving in this country has become a very special time for me. It’s a time to pray, give thanks, and reflect.

 

There are very few, if any, non-Lincoln American Presidential speeches that have impacted me like Teddy Roosevelt’s speech before the Hamilton Club in Chicago in April of 1899. For those of you who have not read it – it’s called The Strenuous Life.

 

“In speaking to you, men of the greatest city of the West, men of State which gave to the country Lincoln and Grant, men who preeminently and distinctly embody all that is most American in the American character. I wish to preach, not the doctrine of ignoble ease, but the doctrine of the strenuous life; the life of toil and effort, of labor and strife…”

 

Back to the Global Macro Grind

 

Grinding it out in markets, daily, for the last 5 years has been strenuous. But that’s not something to whine about - that’s what I love about this game – the daily grind. As my Dad always used to tell me, “when the going gets tough – the tough get going.”

 

Whether by indictment, exhaustion, or extinction, one by one we are seeing major players and firms from the #OldWall leave. In many ways, that’s very good news. There are few professions in this country that need to evolve more than this one does. And for this opportunity to be playing on the front lines of change, I am very thankful.

 

What Americans should also be thankful for this Thanksgiving is deflating in food and oil prices. With 71% of the US economy hinged to the C (Consumption) in the C + I + G + (EX-IM) = GDP calculation, this is where the rubber needs to meet the road back to growth.

 

While November (and Q412 overall) has been a mess from a US stock market perspective, the US Consumer Discretionary Sector has provided a light at the end of the tunnel that is not another oncoming train. For November to-date, here’s the score on that: 

  1. SP500 (SPY) = down -1.7%
  2. Energy (XLE) = down -2.4%
  3. Consumer Discretionary (XLY) = up +0.7% 

Oil got hammered yesterday (we covered our short position on red) and, to a degree, I think that’s what stopped US stocks from closing on their lows. Strong Dollar and Down Oil is great for US Consumption expectations heading into the holiday season.

 

Meanwhile, in Bernanke’s speech to one of the Keynesian Clubs yesterday, he implied that he may very well be out of money printing bullets. Most people don’t believe that. And they probably shouldn’t.

 

But what would the country do if the man just went away? Would the American life of “toil and effort, of labor and strife” change? Or, for the 90% of us who aren’t paid (politically or implicitly) to maintain asset inflation in food/energy prices finally get some relief?

 

I think the answers to these very simple questions are simple. And, until we have the free-market spine to face the long standing US economic truth that the American consumption economy runs faster and more sustainably when the things we consume fall in price, our lives will remain more strenuous.

 

Many disagree with me on that. Many think that Bernanke’s Dollar Debauchery and reflexive, short-term, commodity and stock market inflations will magically create economic growth. But they have not. They have slowed real (inflation adjusted) growth.

 

On CNBC last night, a US economist by the name of Joe Lavorgna (Deutsche Bank) called my economic views “radical.” Joe seems like a nice guy, but his US Growth forecasts at the end of both 2007 and 2011 for 2008 and 2012, respectively, were radically wrong.

 

Being wrong is fine – it happens to me all of the time. But not learning from my mistakes would render me useless. To change, you need to evolve your process. You may fail, but people will respect you more for showing them how and why you are changing.

 

I am many things. I have many faults. But I am not a man of timid peace. If I fail in my assumption that a Strong Dollar will create a Stronger America, I will reluctantly, but transparently, throw in my own towel and hold myself to public account.

 

If I am right, I will have expected to have won. And you’ll be winning too.

 

“It’s hard to fail, but it is worse to have never tried to succeed.”

-Theodore Roosevelt, 1899 (The Strenuous Life)

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Natural Gas, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $108.89-111.48, $3.69-3.91, $80.87-81.37, $1.26-1.28, 1.55-1.68%, and 1, respectively.

 

Happy Thanksgiving to you and your loved ones,

KM

 

Keiith R. McCullough
Chief Executive Officer

 

Strenuous Life - Chart of the Day

 

Strenuous Life - Virtual Portfolio


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next