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Retail Sales: No EPS Upside, But Clearance Is Good

Takeaway: Comp w/o EPS = discounts. But that's better than being left with heavy inventories against the toughest (Spring) compares of the year.

If there’s one trend that is obvious to us with same store sales, it’s that while the department store put up blockbuster comps – all the major retailers in the double digits – we simply did not see any meaningful earnings guidance increase to speak of. Macy’s took up guidance by 3 cents…but on an 11.7% comp? Gap was about the same in percentage terms, but still only 2% on an 8% comp. Neither show anywhere near the kind of leverage we should be seeing if this was, in fact, a real consumer-driven upside.

 

What the lack of earnings shows us is that this was driven by promotional activity. The market's reaction today shows that this is the consensus view -- and it's right. Many companies commented that the first part of the month was stronger than the second, which supports the premise that post-holiday markdown activity and giftcard redemption drove sales. We don’t have a problem with this by any means, as the worst thing the retailers could be faced with is bloated inventories as we head into Spring. It looks like most of them ameliorated that potential issue.

 

In addition, the months of February and March were very strong last year, and the softline space is up against its toughest compares of the year this spring. The last thing they want is high inventories headed into that event. Clean is good. But we still need the consumer to show up for business.

 

 

One of the key charts that we think matters today relates to performance by price point. This month is the first time in three years that ‘Good, Better, Best’ has been inverted such that Kohl’s came in on top, then Macy’s, then JWN. People will ask the question as to whether this means that JCP is losing share. And the answer is ‘Yes’, they are. But we struggle to find anyone on the planet who does not know.

Retail Sales: No EPS Upside, But Clearance Is Good - GBB


JOBLESS CLAIMS & #GrowthStabilizing - 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.

 

In the note below Josh Steiner provides an updated view on this morning’s claims data.  Summarily, while the seasonally adjusted numbers were largely uneventful WoW, the trend in the NSA figures is flashing some weakness

 

Independent of the claims data we would flag some further, emergent risks to a successful hand-off from #growthstabilizing to growth accelerating from here.  We caught the positive inflection in the slope of growth back in late November.  Currently, however, the quantitative and global macro factoring is suggesting the easy alpha may now be rearview – from here it gets a little more interesting. 

 

Quantitative Factoring:  For the 1st time in a while, our model is signaling lower highs for the SPX and higher lows for the VIX.   All 9 S&P Sectors have been Bullish Trade/Bullish Trend for 24 of the last 25 sessions – being perma-anything is generally not a winning long-term strategy, and the extended positive price action, alongside rising oil and a cresting in sentiment, has mean reversion risk percolating here in the more immediate term. 

 

Globally, the Bovespa and the KOSPI have both moved to Broken TRADE & TREND and the EuroStoxx50 is barely holding Trend support at 2615.  TREND line breakdowns are a new development and are not insignificant, particularly when the signal confirms over multiple days and multiple markets. 

 

Oil:  Huge headwind developing for global consumption #GrowthStabilizing with Brent Oil signaling higher-highs and higher lows on our intermediate-term TREND duration. If you need a reason to start selling some stocks and covering Treasury shorts, that’s it.

 

Sentiment: With both the Bull-Bear Spread & NYSE Margin Debt making new cycle highs thru January,  investor sentiment has moved towards the historical red flag region.

 

Seasonality:  The employment shock experienced during the great recession was captured as a seasonal factor, creating a statistical distortional in the government reported employment and econ data  persisting for five years (we're in year 4). The net effect of the distortion is that seasonal adjustments act as a tailwind to the SA labor market data from September – February, then reverse to a headwind over the March-August period.  What’s the date today, again?

 

Congress:  Congress remains the usual wild-card.  What we do know is they will again attempt to save us from a problem they, themselves, perpetuated.  The rhetoric and partisan acrimony will re-crescendo as we move through this month & beyond as congress seeks resolution to the fiscal policy trifecta of the Sequestration, Federal Budget, & the Debt Ceiling issues.  As an aside, total debt now stands at $16.44T as of 2/5; approximately $50B higher than the previous Statutory limit of $16.394T.   

 

As Keith highlighted this morning:  “good spot to sell some stocks & cover some Gold/bonds”

 

- HEDGEYE Macro

 

 

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

 

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.

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 1

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 2

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 3

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 4

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 5

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 6

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 7

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 8

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 9

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 10

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 11

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 12

 

JOBLESS CLAIMS & #GrowthStabilizing - ARE WE NEARING THE END OF THE LINE? - JS 13

 

 

Joshua Steiner, CFA

 

 


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.

 

JOBLESS CLAIMS: End Of The Line? - 1 normal

 

JOBLESS CLAIMS: End Of The Line? - 2 normal

 

JOBLESS CLAIMS: End Of The Line? - 3 normal


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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.

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 1

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 2

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 3

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 4

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 5

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 6

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 7

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 8

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 9

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 10

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 11

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 12

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 13

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 14

 

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.

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 15

 

JOBLESS CLAIMS - ARE WE NEARING THE END OF THE LINE? - 16

 

 

Joshua Steiner, CFA

 


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.


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