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JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY

Takeaway: Initial claims were impressively low last week. The tailwinds of the last 3 years are returning again this year and will last through Feb.

Labor Market: Surprisingly Strong

Last week was another surprisingly strong week of improvement for initial jobless claims. As we've been doing the last few weeks, we again ran the analysis to see whether over-representation by NY, NJ and PA is distorting the numbers. As a reminder, state-level data is released on a one-week lag vs. national data. As of two weeks ago, when national claims were 370k, NY, NJ and PA were still being over-represented in the series by 7.1% vs their normal proportional weightings. This suggests that the normalized run-rate in claims is actually 370 / 1.071 = 345k. Interestingly, that's almost exactly what we saw this week: 343k. 

 

This week's claims print of 343k is significant for a few reasons. Foremost, it matters because it represents a new low in claims post the crisis. Second, it matters because it returns claims to the seasonal trajectory we've seen over the last three years. In other words, the seasonality mal-adjustment tailwind we've often called out is back in full effect, and will continue, as a reminder, through February. So, to reiterate, the jobs data is improving, but the perception of the rate of improvement will be stronger than the underlying reality for the next two and a half months. This, coupled with momentum in the housing market, will provide a strong, ongoing tailwind to the sector.

 

Jobless Claims - The Numbers

This week initial jobless claims fell 27k to 343k from 370k. The prior week's number was revised up by 2k to 372k. Incorporating this upward revision, claims were lower by 29k. Rolling claims, meanwhile, fell 27k WoW to 381.5k and non-seasonally adjusted claims fell 72k to 429k. Additionally, the NSA rolling year-over-year change, which we monitor because it excludes the effects of seasonality, was -4.9% YoY, down from +2.1% in the prior week.

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - Katrina

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - NSA YoY linear

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - State Level Data

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - raw 2

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - rolling

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - NSA

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - Rolling NSA

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - S P

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - Fed

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - recession

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - rolling linear

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - YoY NSA

 

September SNAP: Another 608k People on Food Stamps

While the trend in joblessness is improving, the number of people receiving government assistance to buy food in the U.S. continues to rise. In September, SNAP participation reached 47,7101,324, or 15.3% of the population. In terms of households, there are roughly 23 million households receiving assistance, or about 20% of all U.S households. In September, an additional 608k people joined the program. The number of people on food stamps has risen 79% since June of 2007. 

 

If there's any silver lining here its that the rate of growth in the program has been slowing. In the first chart below, we show the total number of participants in the blue grey columns and the year-over-year rate of change in the black line. The current growth rate is 3.1% year-over-year. which is down from the 5.1% year-over-year growth rate we were seeing at the beginning of this year. 

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - SMAP

 

Yield Spreads

The 2-10 spread rose 10 basis points WoW to 145 bps. 4QTD, the 2-10 spread is averaging 141 bps, which is higher by 4 bps relative to 3Q12.

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - 2 10

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - 2 10 Spread

 

Financial Subsector Performance

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

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - Subsector Performance

 

JOBLESS CLAIMS: LABOR TAILWINDS BACK IN FULL FORCE THROUGH FEBRUARY - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 


Currency Countdown

Client Talking Points

Japanese Bonfire

Japan’s plan to devalue the Yen is hilarious in a macabre sort of way. They’re taking cues from the good old US of A and think that the solution to their problems is to devalue their currency and trashing their economy in exchange for a bullish rocketship for the Nikkei. We’ve seen how well printing money has worked for us and if Japan is keen on following the advice of Paul Krugman and Ben Bernanke, then they’re going to get exactly what they asked for. Keep a close eye on Japan; if you spot a huge ball of fire, it’s their currency burning brightly.

Not So Precious

Precious metals like gold and silver are getting smacked up, dropping -1.2% and -2.4% this morning, respectively. As we’ve said before, the commodity super-cycle is turning and commodities are popping. Throw a strong US dollar into the mix and you’ll continue to see these metals decline in price. Long-term, the dollar will continue to make higher lows. The fiscal cliff will play a part in all of this, so in turn, we’ll play the waiting game to see what effects come out of Congress.

Asset Allocation

CASH 52% US EQUITIES 12%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
NKE

Our competitors are neutral to bearish on the name ahead of earnings, but we think they’re missing the bigger picture. We think concerns over the shoe cycle rolling over are overdone. With R&D in the mid-teens, NKE has the ability to drive the ‘sneaker cycle’ in a case of “the tail wagging the dog”. We also think $NKE is a candidate for releasing a special dividend when they report EPS next week.

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.

FDX

Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road

TWEET OF THE DAY

“FED SAYS FED, BoC, BoE ECB & SNB EXTENDING $ SWAP LINES TILL FEB. 1, 2014 > just a buffer for a rainy day in case funding stress resurfaces” -@BergenCapital

QUOTE OF THE DAY

“Ethics are so annoying. I avoid them on principle.” -Darby Conley

STAT OF THE DAY

US Jobless Claims drop to 9-week low of 343,000.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 13, 2012


As we look at today's setup for the S&P 500, the range is 13 points or 0.66% downside to 1419 and 0.25% upside to 1432.            

                                                                                                                                                   

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.46 from 1.46
  • VIX closed at 15.95 1 day percent change of 2.44%
  • BOND YIELDS – huge relative move in Treasuries yesterday (primarily because volatility in Fixed Income has gone away), but the 10yr yield held below 1.71% TREND resistance backing off to 1.69% this morning; TAIL resistance on the 10yr = 1.89% and that’s as good a proxy for US growth expectations as any right now.

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Advance Retail Sales, Nov. 0.50% (prior -0.30%)
  • 8:30am: Retail Sales Less Autos, Nov. 0.00% (prior 0.00%)
  • 8:30am: Producer Price Index (MoM), Nov. -0.50% (prior -0.20%)
  • 8:30am: PPI Ex Food & Energy (MoM), Nov. 0.10% (prior -0.20%)
  • 8:30am: Initial Jobless Claims 8-Dec 368K (prior 370K)
  • 8:30am: Continuing Claims 1-Dec 3210K (prior 3205K)
  • 8:45am: Bloomberg Dec. United States Economic Survey
  • 9:45am: Bloomberg Consumer Comfort 9-Dec (prior -33.8)
  • 10am: Business Inventories Oct. 0.40% (prior 0.70%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to purchase $4.25b-$5.25b notes
  • 11:30am: U.S. to sell $10b cash-management bills
  • 1pm: U.S. to sell $13b 30-yr bonds reopening

GOVERNMENT:

    • House, Senate in session
    • House Financial Services holds hearing to examine effects Volcker Rule will have on businesses seeking access to capital markets
    • House Agriculture panel holds hearing on Dodd-Frank derivatives rules, international markets, 9am
    • Senate Judiciary votes on Sen. Al Franken’s privacy bill that would require smartphones, apps to request user permission before collecting, sharing location data, 10am
    • Rep. Edward Markey, D-Mass.; Rep. Joe Barton, R-Texas hold a briefing on data brokerage industry, how companies collect, assemble, sell consumer information to third parties, 10:30am
    • House Transportation holds hearing on private-sector participation in high-speed rail projects, 10am
    • Transportation Secretary Ray LaHood delivers remarks at news conference on holiday drunken driving crackdown program, 10am

WHAT TO WATCH

  • Retail sales in U.S. probably rose as auto demand rebounded
  • Americans back Obama tax-rate increase tied to entitlement cuts
  • Apple releases Google’s mapping application through iTunes
  • MetLife taking steps to deregister as bank holding co.
  • Euro zone set to back Greek payment post-Merkel endorsement
  • Aetna CEO sees doubling of some health insurance premiums
  • Citigroup named in lawsuit by Swisscanto
  • CFTC urged to delay implementation of Dodd-Frank 6 mos.
  • FCC requires wireless carriers to allow text-to-911 services
  • Foxconn to assemble Amazon’s smartphone: Commercial Times
  • Amazon selling Kindles on its own Chinese website
  • SNB maintains currency ceiling as crisis woes weigh on franc
  • Canada considering alternatives to F-35 fighter jet
  • Errors in credit reporting may get easier to resolve: CFPB

EARNINGS:

    • Pier 1 Imports (PIR) 6am, $0.25
    • Ciena (CIEN) 7am, $(0.06)
    • Empire (EMP/A CN) Pre-mkt, C$1.26
    • VeriFone Systems (PAY) 4:01pm, $0.76
    • Adobe Systems (ADBE) 4:03pm, $0.56
    • Nordson (NDSN) 4:30pm, $1.03

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


COPPER – not down as much as Silver (getting smoked, -2.6% this morning as the Bernanke Bubble continues to pop), but down the same as China was overnight. I see no irony in either. We’ll keep shorting anything that ticks that is related to the mega Mining Capex Bubble.

  • Palm Oil Tumbles to Three-Year Low as Stockpiles Climb to Record
  • Bonus Cuts as Jobs Decline for Oil-to-Metal Traders: Commodities
  • Oil Drops From One-Week High Amid Disagreement on U.S. Budget
  • Wheat Rebounds From Five-Month Low as Drop May Attract Buyers
  • Gold Drops as Rally to Highest This Month Spurs Investor Sales
  • Copper Drops on U.S. Growth Concerns as Stimulus Optimism Fades
  • Sugar Slides in London on Ample Brazilian Supply; Cocoa Declines
  • Natural Gas $4 Cap Seen in 2013 as Supply Swells: Energy Markets
  • U.K. Lifts Ban on Shale Fracking, Allowing Cuadrilla to Drill
  • Iron Ore Prices in China Show Imports to Slow: Chart of the Day
  • Top M&A Ranked Mitsui Targets Food With $17 Billion Cash: Energy
  • Sierra Leone Blood Spills as Iron Ore’s Boom Stirs Ghosts of War
  • Europe Exports to Asia Seen Surging in Deepening Crisis: Freight
  • Oil at $60 or $120 Doesn’t Prevent U.S. Supplanting Saudi Arabia

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


CHINA – one of the more solid 3-factor intermediate-term TREND leading indicators we use on Global Growth = CHINA/COPPER/BONDS; that composite tends to sniff out the truth as consensus hedge funds short low and cover high. China backed off its TREND resistance (2095 Shanghai Comp) this week, closing down -1% overnight, down -16.2% since global #GrowthSlowing began in March.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


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THE M3: OKADA PHILIPPINES PARTNER; MACAU INFLATION

The Macau Metro Monitor, December 13, 2012

 

 

JAPAN'S OKADA GETS PHILIPPINES PARTNER FOR CASINO Channel News Asia, Macau Business

Robinsons Land Corp., a Gokongwei-controlled developer, said it would take a minority stake in an Okada firm that owns a gaming franchise in the Philippine government's giant Entertainment City complex along Manila Bay.  Under the deal with Okada's Universal Entertainment Group, Robinsons Land said it would also purchase a majority stake in a company that owns land at Entertainment City.

 

The listed Filipino developer did not disclose the total value of the deal, which it said was still "subject to comprehensive due diligence and the signing of definitive agreements in the near future".  The final contract will be signed by January 31, according to Universal.

 

INFLATION UNDER 6% NEXT YEAR: TAM Macau Business

Secretary Tam expects inflation to be below 6% after Chinese New Year, which falls on February 10.  Speaking to local media yesterday on the sidelines of a public occasion, the secretary admitted that there will be some price fluctuations in the next two months due to “seasonal factors”, but the inflation rate would ease after that.

 

He also predicted stable growth in Macau’s economy in 2013, while internal demand will slow down compared to this year.  Tam said that the inflation rate this year will be approximately 6%, which is in-line with the government’s estimate.



White Ants

“Socialism would make our society comparable to that of the white ant.”

-Winston Churchill

 

After the market close last night I was excited to crack open the biggest brick in my reading pile – The Last Lion: Defender of The Realm (1). This puppy is 1182 pages long; could take awhile – so prepare for plenty from the Old Man on 10 Downing St.

 

Comparing Britain’s rise and fall from global economic (and currency) power of the early 20th century is very appropriate when considering what the United States of America is doing under Bush/Obama in the 21st. Churchill has always resonated with me, not because I am like him, but because he wasn’t liked by the burgeoning British #PoliticalClass.

 

“Churchill had a natural sympathy for simple people because he himself took a simple view of what was required… That was no doubt why the man-in-the-street loved him and the intellectuals did not… For that reason, Churchill had “dislike and contempt”, of a kind that transcended politics.” (Preamble, page 6)

 

Back to the Global Macro Grind

 

Reading the preamble to Churchill after watching the gong show that became Ben Bernanke’s rock-star presser yesterday may very well have done the unthinkable to me last night – it made me think.

 

How conflicted, constrained, and compromised are we in America at this point to even consider some of the un-qualified spew that comes out of an un-elected and un-accountable professor who is literally making it up at this point on the fly?

 

Educating yourself to contextualize this moment in economic history is one thing – having common sense is entirely another. Bernanke admitted yesterday that his entire policy framework is based on forecasts that you should have no confidence in.

 

Finally, I think global markets actually took his word for it on that.

 

To review Bernanke’s 2012 experimentations (actually he called them “innovations” yesterday, and smirked):

 

1.   January 25th, 2012 – right when Global Growth was accelerating (I was as bullish as anyone in the world on the prospects for US and Global Consumption growth on JAN24), he arbitrarily decided to move his 0% interest rate Policy To Inflate out to 2014 from 2013. Stocks and Commodities ripped for the next month, then topped.

 

2.   September 13th, 2012 – after whispering sweet bailout promises to whoever got the memo (other than me) from Jackson Hole, Bernanke pushes his 0% interest rate Policy To Inflate out to 2015 and beyond. Stocks and Commodities continued to rip for another day, then topped.

 

3.   December 12th, 2012 – whoever was front-running the Fed’s latest “innovation” (knowing he’d move to “targeting” an unemployment rate that you may not see until 2017-2020) didn’t even stick around for the full press conference. Stocks and Commodities topped, intraday!

 

After perpetuating all-time highs in Housing, Education, Oil, Gold, and Food prices (2006-2012), he pushed out 0% rates 3x in 10 months, from 2013 to 2017 and beyond. Each time, the market rallied less (for less time) on less volume. Atta boy Ben!

 

And people wonder why the commodity/stock market casino of front-running whatever Bernanke makes up next doesn’t reflect the underlying fundamentals of A) the economy and/or B) corporate revenue/earnings growth? Wonder no more. His explanation of what he is doing and why yesterday was so scary that even Gold wouldn’t keep going up.

 

And boom! Gold and Silver fall another -1.2% to 2.4%, respectively, this morning. To me at least, it’s like watching White Ants marching over their own expectations cliff. If you’re really long this stuff (say, for example, you own 21% of the Gold ETF), what, precisely, is your next catalyst? 2050?

 

As Churchill said, “Never, ever, give up!” And I won’t in contextualizing the moment markets are in within the lessons of history learned. Gold has been up (year-over-year) for 12 consecutive years. One might assume that the market has sufficiently discounted:

  1. Japan cutting to zero (and now setting the Yen on fire)
  2. USA cutting to zero (and then re-defining zero)
  3. Europe readying itself to create the fiscal/debt union to accomplish Japanese/American Style Zero

Zero. Think about what zero means. If the risk-free rate is zero, going forward it’s going to be increasingly difficult to beat zero.

 

I think most people who run money get that. And if you’re being honest with yourself (all you have to do is look at the balances in your equity market accounts versus where they were in December 2007 to get the point), you’d be happy to get back to zero (break-even). Like the Nikkei post its real-estate/asset 1980s price bubble, the SP500 keeps making lower long-term highs.

 

As I’ve written multiple times since stocks bottomed at higher-lows in November, there will be a great economic opportunity born out of food and energy price deflation if we allow Bernanke’s Bubbles (Commodities) to pop.

 

Deflating The Inflation Expectations out there will definitely take time – but at this point you don’t even have to have faith. You don’t have to believe the Keynesian intellectuals who are failing all-over themselves anymore either.

 

Just be a simpleton, like me. Think mean reversion, gravity, and White Ants.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, Shanghai Composite, and the SP500 are now $1, $105.43-109.65, $3.61-3.71, $1.29-1.31, 1.66-1.72%, 2035-2095, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

White Ants - Chart of the Day

 

White Ants - Virtual Portfolio


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