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JOBLESS CLAIMS: End Of The Line?

Jobless claims ticked down slightly by 5000 to 366,000 week-over-week, which was basically a non-event. Looking at the numbers on a seasonally-adjusted basis, however, it appears the labor market could be taking a turn for the worse. The 4-week rolling average of seasonally-adjusted claims fell -1.5k week-over-week to 350,500. The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -0.9% lower year-over-year, which is a sequential deterioration versus the previous week's year-over-year change of -4.7%. The payroll tax hike could in fact be having a negative effect on employment.

 

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PODCAST: Scary Stuff

 

On today’s Morning Investment Call for subscribers, CEO Keith McCullough discusses how frightening it is that the political class is capable of creating another financial disaster.

 

It’s scary to think that politicians can take credit for “saving us” from disaster when in reality, they’re quite capable of making it happen all over again. When we look at what the #OldWall media is saying, combined with our signals, things are looking bearish to us. 


JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE?

Takeaway: A relatively uneventful week in the labor market as claims go down slightly. The NSA trend, however, appears more negative this week.

Initial claims continue to follow their predictable path of improvement through February, although this week's improvement was slightly more muted than expectations. To reiterate, there is another 3 weeks of improvement ahead, which will likely be followed by a ~1 month honeymoon period before the SA data starts to turn. Prior to revision, initial jobless claims fell 2k to 366k from 368k WoW, as the prior week's number was revised up by 3k to 371k. The headline (unrevised) number shows claims were lower by 5k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -1.5k WoW to 350.5k. The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -0.9% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -4.7%. This raises an interesting question about whether the payroll tax hike and high-earner tax rate changes are, in fact, having a negative impact on employment beneath the seasonal adjustment factors.

 

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Yield Spreads

The 2-10 spread fell -1.5 basis points WoW to 171 bps. 1Q13TD, the 2-10 spread is averaging 164 bps, which is higher by 22 bps relative to 4Q12.

 

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Joshua Steiner, CFA

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Cashing Out

Client Talking Points

A Time To Cover

Dark and stormy skies are forming and the bulls are beginning to wonder if the party will soon be over for stocks. Brent crude oil ticked up higher this morning past $117.40 a barrel. As we know, higher oil prices can stop #GrowthStabilizing right in its tracks and put us back in the #GrowthSlowing camp. High gas prices put a damper on consumption which puts the brakes on growth. Wouldn’t be a bad idea to start covering Treasury shorts and taking profits on equity positions. With the S&P 500 up 5%+ for the year thus far, it’s easy to understand why a pullback could occur sooner than later.

Asset Allocation

CASH 50% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

“Anyone else chuckling at thought of Einhorn trying to pitch his preferred stock idea 2 Steve Jobs?#wishyouwerehere $AAPL” -@ActAccordingly

QUOTE OF THE DAY

“What some people mistake for the high cost of living is really the cost of high living.” -Doug Larson

STAT OF THE DAY

U.S. jobless claims drop by 5000 to 366,000 on a seasonally adjusted basis for the week ending February 2nd. Estimate was 360,000.



Going Global

“We have to remember we're in a global economy. The purpose of fiscal stimulus is not simply to sustain activity in our national economies, but to help the global economy as well, and that's why it's so critical that measures in those packages avoid anything that smacks of protectionism."

-Prime Minister Stephen Harper 

 

Next week Keith and I will be taking the show on the road to London.  Our top notch sales team has set up a great schedule and we will be engaging with 20+ of the largest investment firms in London.  Without a doubt, it will be interesting to get a sense for sentiment, outlook and flows from another continent. At the end of the week, we may even peak our heads into a pub.  (If you are a London based fund, we still have a few slots left so email if you want to set up a meeting.)

 

Canadian Prime Minister Stephen Harper knows a thing or two about free market capitalism.  In fact, Harper went so far as to export the head of his central bank, Mark Carney, to England.  As the newly anointed Governor of the Bank of England, Carney is already feeling the heat in British Parliament this morning in his first grilling.  On the topic of the Bank of England independence, Carney minutes stated:

 

“There is no question about my independence as governor of the Bank of England. There is a governance structure that has been put in place, there is an absolutely clear structure.”

 

So, if the politicians of England were looking for a patsy, it would seem, at least for now, Carney is not their man.

 

The benefit for Carney is that the U.K. appears to be starting to see stabilizing growth, even as the rest of Europe is still struggling.  The most recent British data point is December industrial trade production that was up 1.1% from November to December.  Certainly that’s not a growth statistic to get overly excited about, but on the back of U.K. home prices that were up 1.3% in January and January services PMI that was reported at 51.5.  Meanwhile, the Eurozone in total reported a PMI of 48.6, which signifies contraction.

 

Not surprisingly, the New York Times has been critical of Prime Minister David Cameron’s decision to get the fiscal house in order as a path to long term sustainable growth.  In fact, in a recent article titled, “God Save The British Economy”, Adam Davidson argues that Cameron’s decision to cut government spending to eliminate crowding out of the private sector has hurt the British economy vis-à-vis the American economy.

 

The funny thing is that in the fourth quarter of 2012 while the British economy shrank -0.3% sequentially, the U.S. economy didn’t fare much better at a -0.1% sequential decline.  Meanwhile, the U.K. has been steadily improving its fiscal situation with a debt-to-GDP of 88% versus the U.S. at 107%.  Whether you are a Keynesian or not, in the long run we all likely agree that the less government money that is used to service government debt, the better an economy will fare.

 

While I am on the topic, today is set to be an interesting day in Europe with the beginning of the two day EU summit kicking off in Brussels. Undoubtedly, a key topic will be the recent strength of the Euro, especially versus the Japanese Yen.  Perversely as both the Europeans and Japanese actively try to devalue, with both rhetoric and policy, it should be increasingly positive for the U.S. dollar and consumption in the U.S.  Consumption, of course, is 70% of the U.S. economy. 

 

In the short run, though, U.S. equities are starting to price in stabilization of economic growth.  To us, this looks like a spot to reduce some equity exposure and cover bonds and gold, especially with the SP500 up a quick 5%+ on the year and the VIX at 13.4.  Meanwhile, insiders, based on a report out yesterday, are selling at a level of 9.2:1, the highest level since the equity sell off in 2011.

 

On a company level, I wanted to highlight our short call yesterday on Gulf Port Energy, with the ticker GPOR.  Energy is followed by Senior Analyst Kevin Kaiser and put together a very thoughtful presentation of some 60 pages that walks through the history of the company and a sum-of-the-parts valuation.  The nut of it all is that we think GPOR is one of the better shorts in energy for the following reasons:

 

-          Sentiment is extremely positive with 15 buys and 1 hold, and the stock is trading at literally a 52-week high;

-          Former majority shareholder Wexford Capital has exited their entire position in GPOR;

-          Consensus numbers appear too high for this year and next (as evidenced by yesterday’s pre-release);

-          GPOR is expensive trading at $94 EV / proven reserves ($/boe) versus the peer group at $16; and

-          Our NAV valuation gets us to ~$22 per share versus the current stock price of ~$40.

 

Obviously, when you make a short call on a stock it raises the ire of some and interest of others. The beautiful thing about being Hedgeye is that we have no banking, trading, or asset management.  We get paid to simply generate compelling investment ideas and do great research.  A simple enough concept, though a concept not always embodied in the hallowed halls of Wall Street 1.0.

 

As Sigmund Freud once said:

 

"Flowers are restful to look at. They have neither emotions nor conflicts."


The Hedgeye research team is many things, but wall flowers they are not. Thankfully, we are also not conflicted.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $115.14-117.86, $79.41-79.99, $1.34-1.36, 91.93-94.31, 1.96-2.05%, and 1, respectively.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Going Global - Chart of the Day

 

Going Global - Virtual Portfolio


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