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HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD

Takeaway: Home price appreciation is accelerating. Corelogic's early read on November trends suggests that momentum remains very strong.

*** Tune in for our call this Friday at 11am: "Could Housing's Recovery Go Parabolic in 2013?" ***

Dial in:

Code: 314729# 

 

Home Price Trends Continue to Accelerate

Yesterday's Corelogic home price data release makes adds evidence to the argument that housing's recovery is accelerating. October home prices rose 6.3% YoY, which was a sharp acceleration from September's YoY growth of 5.2%. More to the point, Corelogic has for the last few months provided an early read on the following month. Based on this early read, they estimate that home prices rose 7.1% in November. Moreover, the distressed-excluded home price index is estimated to rise by 7.4% in November. We think it's also worth pointing out that that there was an upward revision of sorts to this October number. One month ago, when Corelogic gave an early read into October pricing, they estimated prices rose by 5.7%. The actual data came in at 6.3%. This month, they're estimating November at 7.1%. 

 

We'll discuss why animal spirits are taking hold in housing on our conference call this Friday. 

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   YoY

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   YoY CL  CS  FHFA

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   Distressed vs non distressed

 

Demand Reinforces Price

Mortgage demand rose +0.1% week-over-week. While +0.1% is nothing to write home about, it is noteworthy in that it is coming off a relatively high base, and marks the fourth consecutive week of positive WoW improvements. In fact, 13 out of the last 16 weeks have been positive.

 

Refinance applications rose 6.0% last week while the average rate on a 30-yr FRM declined 3 bps to 3.40%.  QTD refinance applications are 41% higher than they were in 4Q11.

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Shark

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi ST

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Mortgage Rates

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Shark LT

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi LT

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - YoY

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Purchase QoQ

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi QoQ

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Composite QoQ

 

Joshua Steiner, CFA

 

Robert Belsky


REMINDER AGRICULTURAL EXPERT CALL; DIAL-IN AND MATERIALS

Please CLICK HERE to access the presentation. Dial in 5-10 minutes prior to the 11:00am EST start time using the number provided below. If you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 611762

REMINDER AGRICULTURAL EXPERT CALL; DIAL-IN AND MATERIALS  - Ag.Call

 

Restaurant Tickers Affected:

DRI, BLMN, TXRH, WEN, JACK, MCD, PNRA, PZZA, DPZ, YUM, CAKE, EAT and CMG

 

Food Processing Tickers Affected:
TSN, SAFM, SFD, HRL, PPC, CAG, DF and MON 

 

 

Today at 11:00am EST the Hedgeye Macro Team and Restaurants Team will be hosting an Agricultural and Consumer Economics Expert Call with Professor Darrel Good of the University of Illinois. Good has been part of the faculty since 1976 and took part in developing a comprehensive farm risk management website (www.farmdoc.uiuc.edu). His efforts are now focused on the performance of grain futures contracts as well as corn and soybean yield trends. 

  

Topics will include: 

  • Supply side - planting intentions and farmer's economics
  • Demand side - key drivers of demand - ethanol, protein, consumption (domestic and abroad)
  • General long-term trends to think about for farming - utilization, fertilizers, seed evolution
  • Thoughts on USDA projections, and their historical accuracy and what the implications are now
  • View on supply, demand, key drivers and prices for:
    • Corn
    • Wheat
    • Soybeans
    • Cattle
    • Chicken  

 

Good's Background

Darrel Good has a comprehensive understanding of the agricultural markets and economic implications. "There was a time period in the early seventies when grain markets changed dramatically," said Good. "Russia started importing grain, prices just exploded to the upside and there was renewed interest in markets and prices. I was hired to help develop a very extensive educational program in marketing and risk management."  

  • Professor in the department of Agricultural and Consumer Economics, is marking his 33rd year with the University of Illinois
  • Good and two other faculty members developed a seminar called "Price Forecasting and Sales Management"
  • One of the founding members of the farmdoc team
  • He writes one of the featured newsletters on the farmdoc site, Weekly OUTLOOK , and he is a primary contributor to the AgMAS section
  • Current research includes:
    • Evaluation of the pricing performance of agricultural market advisory services
    • Evaluation of USDA production and price forecasts

Evaluation of pricing performance of Illinois corn and soybean producers  


The Future Of Oil

Brent crude oil prices will likely remain depressed for some time as futures contracts for oil are currently in backwardation. That means that futures contracts further out in time (i.e. January 2013, February 2013, etc.) are lower than today’s current price. That means you can lock in lower prices for oil in the future today. The opposite is called contango, which is what we saw back in 2009. 

 

Normally, prices should reflect current supply, demand, inventory and convenience yield. The curve occasionally moves into backwardation when the convenience yield exceeds the storage and interest costs; that puts a premium on owning oil now.

 

 

The Future Of Oil  - image010

 

 

The consensus would normally think that backwardation signals higher oil prices are coming; we argue the opposite. From Hedgeye Energy Sector Head Kevin Kaiser:

 

“In our view, consensus considers a backwardated futures curve as a bullish signal for future spot prices.  We have read and heard this argument many times from highly-regarded energy analysts and investors.  We argue the opposite: if the curve is backwardated then the demand or supply shock has either already happened or is highly-anticipated, and we would expect spot oil prices to fall in the future.  Conversely, a steep contango would be a compelling buying opportunity, as it implies low convenience yield that is likely to rebound.”

 

 

The Future Of Oil  - image011


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Age & Beauty: Resilient November Class 8 Orders

Takeaway: November Class 8 orders weathered the political and literal storms. The data shows the benefit of depressed cyclicals like $PCAR.

Age & Beauty:  Resilient November Class 8 Orders

 

  • Resilience:  The current US Class 8 truck fleet is the oldest ever, by our data, and November orders show the benefit this provides to the Truck OEMs.  Despite November's headwinds from the fiscal cliff and weather, orders continued sequential YoY improvements.
  • Owners Keeping Pre-2007 Trucks:  The 2004-2006 vintage pre-buy Class 8 trucks have fewer emissions controls than current new trucks.  Owners will be slow to replace these trucks with more complex new units.  Truck OEMs win either through aftermarket parts sales or new truck sales as these trucks age.   
  • Excellent Set-up:  November orders remain 6%-7% below replacement demand despite the sequential improvement, indicating that the Class 8 fleet will continue to age.  An aging fleet represents pent-up demand for new trucks and high margin aftermarket parts.
  • Top Machinery Idea:  With construction activity improving, Navistar continuing with a difficult 13L strategy, and an aging Class fleet, we see PACCAR as a top long idea.  See our Truck OEM Black Book for valuation and other data.

 

Age & Beauty:  Resilient November Class 8 Orders - 9

 

 

 

 

 

Jay Van Sciver, CFA

Managing Director


HEDGEYE RISK MANAGEMENT
120 Wooster St.

New York, NY 10012


 


Follow The Leader

Client Talking Points

Consumption Junction

There’s nothing wrong with going on a shopping spree once in awhile and that’s what we did yesterday. We eyed up consumption names like the Consumer Discretionary ETF (XLY) and bought ‘em. We’re doing this because we know our government is quite capable of driving consumption through inflation. And when a name we like is red on the day, we buy. Why anyone would buy a stock when it’s up a few hundred basis points on the day is beyond us - that’s not a deal, that’s a rip off.

Playing The Game

Aside from individual stockpicking, you can always follow the trend. That doesn’t mean you blindly swim with the rest of the fishes and hope for the best. It means you look at what’s going on around you and adapt to your environment. We like Consumer Discretionary and Consumer Staples on the long side and on the short side of things, commodities, food (corn, wheat, coffee) and oil remain in bearish formation. 

Asset Allocation

CASH 58% US EQUITIES 9%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 9%

Top Long Ideas

Company Ticker Sector Duration
YUM

New unit openings in China and strength in YRI and US should offset China weakness in 1H13. China SRS growth is sensitive to the economy but new unit growth and ROIIC are likely to be supported by continuing growth of the consuming class in China. Looking at operating income by geography for YUM/MCD/SBUX, we can see that YUM is the most geographically diverse. This is manifest in YUM’s more stable EPS growth and price performance over the last 10 years.

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

ASCA

We believe ASCA is greatly undervalued due to its potential to follow a OPCO/PROPCO model like PENN in two years or so. A high FCF yield and a healthy balance sheet make this gamer an attractive investment.

Three for the Road

TWEET OF THE DAY

“at what point exactly will folks come to the realization that the job market here in the U.S. is in the midst of a structural change” -@GuyAdami

QUOTE OF THE DAY

“I can believe anything, provided that it is quite incredible.” -Oscar Wilde

STAT OF THE DAY

ADP Report: Private Sector Employment Rose by 118,000 in November.


THE M3: OUTER HARBOUR FERRY

The Macau Metro Monitor, December 5, 2012

 

 

WORKS ON THE OUTER HARBOUR TERMINAL TO START NEXT YEAR Macau Business

According to the director of the Maritime Administration, Susana Wong Soi Man, the expansion works of the Outer Harbour Ferry Terminal will start in mid-2013.  The government is now preparing the public tender.  In addition, she said that the Taipa Ferry Terminal would be fully operational in the first half of 2014, including a direct link to the Macau airport.

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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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