The Economic Data calendar for the week of the 11th of February through the 15th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.




Takeaway: Household growth in January vs the prior year decelerated by 84 bps sequentially. Is this a sign of slowing momentum?

This note was originally published February 08, 2013 at 11:28 in Financials

Household Formation Reflects Consumer Confidence

While the fiscal cliff didn't seem to deter people from forming households in December (December posted the strongest YoY growth since the upturn began), apparently the payroll tax hike did. 


The January monthly household formation data, a key leading indicator for housing, just became available on the Census Deptartment's website. On a year-over-year basis, household growth in January was +1.11%, a sequential deceleration from December's YoY growth rate of 1.95%, and the weakest one month print we've seen since the 3Q11 upturn began.


This is the most current data available, and has been a good leading indicator for the housing sector. Consider the sharp inflection in 3Q11 household formation trends, which preceded the actual turn in housing data and housing stocks that followed in October/November, 2011.


While a concern, we wouldn't get too worried about a single month's print, especially as January was lapping a tough comp. That said, we'll be keeping a close eye on February to see if this is indicative of an emerging trend.




Joshua Steiner, CFA



Slippery Slopes

Client Talking Points

Slowing Growth

Since we transitioned from #GrowthSlowing to #GrowthStabilizing back in November/December, things have been relatively uneventful as the Dow hit 14,000 and the S&P 500 climbed to 1500. Now, with Brent crude oil approaching $118 a barrel, we have to worry about consumption slowing which in turn slows growth. People paying $5 to $6 a gallon for gas start pinching pennies instead of going out to Applebee’s every night for dinner. Oil is a big headwind for global growth and we’ll have to see what it does over the next week in order to asses what happens next.

Heads Or Tales

This morning we had the pleasure of waking up to the EuroStoxx 50 breaking down on both a TRADE and TREND basis. It’s clear that much like America, the European political class is intent on screwing things up. Draghi wants to “jawbone the Euro back down” as Keith put it this morning and do the opposite of what helped Germany’s economy recover. Currency does have a positive correlation to growth expectations believe it or not; just look at Japan.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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


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 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


“Final paper on the table. "It's the Final Countdown", as Europe would sing. #EUCO #MFF” -@alexstubb


“I quit therapy because my analyst was trying to help me behind my back.” -Richard Lewis


Canadian International Merchandise Trade (CAD) (Dec) -0.90bln vs. Exp. -1.45bln (Prev. -1.96bln, Rev. -1.67bln)

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PM – Hard to Poke Holes in the Quarter

PM put up a solid print yesterday - here's what we liked

Constant currency organic revenue growth accelerated to 6.8% in the quarter versus a reasonably difficulty comparison (+8.2%) in the year ago.  Even better, we saw that top line strength leveraged into +12.3% currency-neutral operating income growth, an enviable result versus the balance of the consumer staples names that have reported thus far.  The company exceeded our volume estimate, posting volume growth of 2.7%, with strength in the Eastern Europe, Middle East and Africa region (+7.1%), as well as the Asia region (+5.7%)  – meaningful reacceleration of the volume momentum in both regions.

EPS exceed consensus by $0.02 in the quarter, but guided below consensus (range of $5.68 to $5.78) versus consensus of $5.79 (we are at $5.71, but still see some risk to that number as the yen continues its downward spiral.

We need to see consensus move down closer to our estimate (it should) given the company’s commentary yesterday in order for us to get more constructive on the name.  We prefer to have a positive bias on names with a clear path to EPS upside (CAG, for example).

Having said that, PM’s results in the quarter shame a number of other large cap staples names whose multiples exceed that of PM (in some cases by a 1 or 2 P/E turns).  If only PM shipped diapers instead of cigarettes…


Call with questions,




Robert  Campagnino

Managing Director




Matthew Hedrick

Senior Analyst

Oh Snap

“I hated every minute of training, but I said, ‘Don’t quit. Suffer now and live the rest of your life as a champion.’”

-Muhammad Ali


Winning is never easy.  It requires early mornings and working hard.  That is true regardless of what your field of competition.  It may be producing research, it may be investing, it may be athletics, and so on.


Last night I joined the men of Ivy League Football for a few cocktails post the dinner they hold every two years.  Now I’m going to admit it, I definitely would have preferred to continue to sleep in this morning (so, yes, perhaps I had too many cocktails), but the only type of winning I understand is that which requires getting up and grinding. So here I am.


As usual when I get up, I’m greeted by a few emails from my colleague Keith McCullough regarding the global macro news and data flow.  The most notable one this morning related to the Stoxx 50, which is the “blue chip” index for Europe. (Think Dow Jones with a few more names.)  His email simply stated, “The Stoxx 50 snapped.”


For those of you that have been subscribers for awhile, you know that the price of securities and indices in our model are critical to determining future outlook.  When something snaps, that is not a good thing for those investors that are long of that market.  So, yes, as it relates to Europe, oh snap indeed.


Should any of us be surprised that the blue chip European index has snapped this week? Well, not really given that the European Union leaders were all convening in Brussels and that T.V. cameras were omnipresent.  In fact, according to the news releases this morning, they actually pulled an all-nighter last night.  I was out late with the boys from the grid iron, but I certainly didn’t pull an all-nighter, so kudos to them.


That said, the fundamental problem with politicians getting too much air time is that it is usually not great for equity returns.  Or, really, any asset price returns.  The funny thing about policy and policy makers is that they actually do influence markets and sometimes to a greater degree than they realize.  The perfect recent example of this phenomenon is the Japanese Finance Minister, Taro Aso.


Mr. Aso has been quite explicit since coming into office that he believes Japan needs to devalue and create inflation.  That is obviously all fine and good, until the market corrects more than said policy maker hopes.  As it relates to Mr. Aso and the Yen, it seems that has happened this morning.  According to this Aso:


“It seems that the government's policies have fueled expectations and the yen weakened more than we intended in the move to around 90 from 78.”


Markets are funny critters, aren’t they? They often do more than we expect.  (And sometimes less for that matter.)


This morning, there is a fair amount of pin action. As Keith also highlighted this morning:


“Plenty of cracks in my country level TRADE and TREND signals (Equities) now – tops are processes, not pts:


1.   FX WAR – Draghi is now trying to do precisely the opposite of what helped Germany recover, jawbone the Euro back down; overlay the slope of German economic recovery w/ the Euro in the last 3 months and you will see the pt western academics don’t get – currency has a POSITIVE correlation to growth expectations.

2.   INDIA – India’s Sensex joins the KOSPI (and Italy, France, Spain, Brazil) as the latest Equity market to snap my immediate-term TRADE line of 19,839 support. In isolation, I wouldn’t bother w/ a signal like this – but when the big country indices start to pile up, I move. Took down our Global Equity asset allocation yesterday.


3.   10YR  - the long bond looks almost identical to the VIX on price/volume/volatility factors – both signaled their first higher-lows of the yr in the last 48hrs. The upside down of that now makes last week’s closing high for the 10yr of 2.01% immediate-term TRADE resistance. Brent Oil > $115 is a headwind to global growth. Period.”


Incidentally, if you are not on the Direct from KM email list, ping and let them know you want to be upgraded.


As for the points above, the most noteworthy callout from my seat is that the Indian equity market has also snapped.  When equity indices start to snap, it is time to reduce equity exposure. 


Despite some of these major indices snapping, not all is negative this morning.  In fact, China reported some solid economic data.  Specifically, Chinese trade data for January  beat expectations as exports rose +25% versus estimates of +17.5% and imports were up +28.8% versus estimates of +23.5%.  Those are darn good numbers, even if it is the year of the snake!


I’m going to cut it a little short this morning as I’m sure many of you are busy prepping for the snow storm.  As always, let us know if you need help with anything.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $115.78-118.03, $79.79-80.29, $1.33-1.35, 92.20-94.29, 1.92-2.01%, and 1, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


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