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HOUSING: Explosive Growth

Two more positive datapoints for the housing market have recently come out: household formation and mortgage demand. Household formations accelerated to a new high in December, +1.95% on a year-over-year basis versus November’s year-over-year growth rate of 1.73%. Households are being formed at the fastest rate since the start of the financial crisis several years ago and it’s quite striking to see how quickly housing is recovering as a whole. 

 

 

HOUSING: Explosive Growth - census hh formation dec 12

 

 

Meanwhile, mortgage applications surged, rising 12.9% week-over-week versus last week’s 10% rise. That brings the index level for purchase applications to 205, the highest level we've seen since the downturn bottomed. Total mortgage volume for the first two weeks of the year are running 6% below the full-year 2012 average.

 

 

HOUSING: Explosive Growth - mba short term

 

HOUSING: Explosive Growth - mba purch shark yoy


IDEA ALERT: BUYING EAT

Keith added EAT to the long side of our Real Time Alerts this morning at $32.42.  Brinker is our favorite casual dining name and, despite the many headwinds facing the group, we believe that Chili’s will continue to take share versus its competitors.

 

We expect Chili’s to produce 2QFY13 same-restaurant sales in the region of 2%.  Kitchen enhancements and remodels at Chili’s continue to aid top-line momentum and lead, in our view, to an upside surprise versus the consensus estimate of 1.5% SRS.  It will be important for results to continue to demonstrate continuing progress on the restaurant operating margin line as the benefits of the remodel program continue to flow through. 

 

At 7.5x EV/EBITDA, the stock is being valued below the average casual dining stock at 7.7x.  As well as the attractive multiple, we believe that there is modest upside to the Street’s EPS estimate, which is currently at $2.32, to $2.38-2.40.

 

Brinker’s shares represent the best way to play casual dining on the long side, in our view, particularly if macroeconomic growth continues to stabilize.  However, competitive dynamics, including the impact of Darden’s explicit desire to sacrifice margin to gain traffic should not be ignored.  It's difficult to know how great an impact Darden's "price war" will have on Chili's - particularly Chili's newly remodeled stores - but given the recent declaration from Orlando, we would advise close monitoring of long positions in any casual dining shares.

 

IDEA ALERT: BUYING EAT - eat eeg

 

 

Quantitative View

 

Our Macro Team’s quantitative view of the stock is that near-term TRADE resistance and support lie at $33.95 and $32.23, respectively.  Intermediate-term TREND support is at $31.56.

 

IDEA ALERT: BUYING EAT - brinker levels

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 

 


Multi-Year High In Real Earnings Growth

Takeaway: Real Earnings Growth Accelerated to a multi-year high in December. The Dollar - Inflation - Real Growth connection remains the one to watch.

 

The continued burn-off in USD-Equity correlations we saw yesterday with Dollar Up, Stocks Up, & Oil Down remains the bullish factor cocktail we’d like to see persist for us to successfully bridge the inflection gap between #growthstabilzing & real growth accelerating. 

 

The inverse relationship between USD appreciation and energy and commodity deflation remains pronounced across durations. Similarly, the inverse relationship between real earnings growth & commodity inflation over the last 5 years has been distinct – in addition to inflations’ direct drag on the calculation of real earnings growth, it’s likely that as input costs rise and/or real consumption growth slows, employer’s look towards managing the SWB line as a margin supportive offset. 

 

Below we show the trend in Real Earnings Growth (updated for this morning’s release) along with a long duration view of the relationship between Commodities Price Growth, the US Dollar, and  Real Earnings Growth (note that commodity prices are inverted in the charts).   The takeaway from the chart series below is really very simple with the data implying: 

 

USD Higher --> Energy/Commodities lower --> Real Earnings/Real Growth Higher

 

As simplistic as this Dollar based flow model is, it remains the outstanding, untried policy transmission mechanism most capable of catalyzing sustainable real growth both domestically & globally, in our view. 

 

The Real Earnings update for December showed Real Weekly Earnings growth accelerating to +0.6% - a new multi-year high and an obvious positive in the wake of the elimination of the 2% payroll tax holiday to start calendar 2013.  The USD remains bullish on TRADE & TAIL durations and, alongside an easy comp setup through mid-year, should support further positive growth in real earnings should the USD bid continue. 

 

Will legislators & policy makers make a genuine go at sustainable fiscal consolidation domestically, or even just stay out of the way?  Will the phase transition in Japanese monetary policy promised by Taro Aso et al. continue to provide a relative bid to the dollar?  We don’t know either -  but so long as prices continue to confirm and the Dollar Up, Stocks Up dynamic can perpetuate itself, the immediate term game plan on the equities side remains to buy the Dips.    

 

Christian B. Drake

Senior Analyst 

 

 

Multi-Year High In Real Earnings Growth - USD vs CRB

 

Multi-Year High In Real Earnings Growth - Real Weekly Earnings

 

Multi-Year High In Real Earnings Growth - Inflation vs Real Earnings

 

Multi-Year High In Real Earnings Growth - Gas Price vs Real Earnings

 

 


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Apple Picking

Takeaway: Here’s a look at our recent trading signals around Apple stock. $AAPL

Below is an excerpt of a note published to our institutional clients earlier this morning. It provides insight into how we trade Apple stock.

 

We bought Apple (AAPL) at immediate-term TRADE oversold yesterday.

 

That doesn’t mean we love Apple (AAPL) long-term here (see chart). It just means what it means – we are at war with consensus and our quantitative process was signaling immediate-term exhaustion on the sell side of a stock that we risk manage like an ETF.

 

Before I get AAPL geniuses in a heat about that, here are the last 3 big signals our process has delivered:

 

1.       June 1, 2012 at $571.86 = BUY  

2.       September 28, 2012 at $677.74 = SELL

3.       December 17,2012 at $502.50 = BUY

 

No research. Just math, and some behavioral context.

 

How many people in our profession thought/think that it’s their own unique, non-inside info, qualitative research edge that made them “smart” being long AAPL? I don’t know. All I know is that a lot of hedge funds have gone away for doing the inside info thing, and a lot more research-only funds that don’t have a quantitative risk management overlay get mad at me.

 

That’s progress.


Bullish Formation: SP500 Levels, Refreshed

Takeaway: The Risk Range is tight – if 1466 breaks, first line of support is 1456.

POSITIONS: 11 LONGS, 8 SHORTS @Hedgeye

 

This is what Bullish Formations do, they frustrate people inasmuch as bearish ones do.

 

They get overbought and they get oversold. This one was overbought, then corrected (briefly), and isn’t as overbought as it was.

 

Overbought doesn’t always happen at the same price. Time, Volume, and Volatility signals all matter – so does the catalyst calendar. It’s a lot, but managing beta risk isn’t for rookies either.

 

Across our core risk management durations, here are the lines that matter to me most:

 

  1. Immediate-term TRADE overbought = 1478
  2. Immediate-term TRADE support = 1466
  3. Intermediate-term TREND support = 1421

 

In other words, the Risk Range is tight – and I like it tight, because that makes our job easier before it becomes more difficult again (it will). If 1466 breaks, first line of support is 1456.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish Formation: SP500 Levels, Refreshed  - SPX


JPM: A Solid Quarter

JP Morgan (JPM) released its Q4 2012 earnings this morning and overall, the numbers were solid. The company earned $1.39 vs. expectations for $1.20. We estimate core earnings were closer to $1.16, which adjusts for all of JPM's itemized one-time items as well as its reserve release. Net interest margin (NIM) fell three basis points but was in-line with estimates and much better than its peers such as Wells Fargo (WFC).

 

Though the stock currently trades near the high end of its range over the last few years, it’s still trading a 16% discount to fair value of $53.89. There’s room for upside with JPM’s stock, even after an impressive quarter.

 

JPM: A Solid Quarter - tbvps jpm


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