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INITIAL CLAIMS - TAILWINDS ARE PEAKING, PREPARE FOR THE TURN

Takeaway: We're at the inflection point in claims. Take note of the trend over the last three years in thinking about the next three months.

One Away

Everything's coming up roses with the recent initial jobless claims data, this morning's better than expected print included. This should come as no surprise to anyone who's been following our work. The end of February marks of the peak of the seasonality distortion tailwind. Next week will mark the final tailwind datapoint. Then, beginning in March, we'll start to see the effect reverse and the market's perception around the momentum in the labor market will begin to weaken and ultimately will turn bearish as the reverse effect peaks in August. It's also worth noting that the sequester takes effect tomorrow, and may result in a notable short-term spike in jobless claims if Congress doesn't take action.

 

For reference, the XLF dropped 20% in 2010, 32% in 2011 and 15% in 2012 beginning in the late February through mid-April timeframe in each of those years. We think a major factor component of the decline is this labor market seasonality dynamic. It's important to note that the effect is getting steadily smaller over time due to weighting methodology in the government's seasonality models. It's also important to note that last year's decline was conspicuously smaller, and shorter in duration, than the previous two years. We think this owed to the ongoing strengthening housing recovery coupled with the lessening effect of the distortion. We think those two factors will again be present this year, likely making the pullback more comparable to that of 2012 than 2011.

 

For those with a longer-term view, looking past the next 3-6 months, they should take some comfort in the fact that the latest week's data, on a non-seasonally adjusted basis, showed continued improvement. The YoY change in NSA claims was better by 8.0%, the largest YoY improvement in the last 5 weeks. However, the rolling 4-week average of NSA claims improved YoY by 2.4%, which was modestly worse than the 3.2% improvement in the previous week. The bottom line is that the real labor market is still improving, just not by as much as the market thinks.

 

Prior to revision, initial jobless claims fell 18k to 344k from 362k WoW, as the prior week's number was revised up by 4k to 366k.

The headline (unrevised) number shows claims were lower by 22k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.75k WoW to 355k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -2.6% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -3.9%

 

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Yield Spreads

The 2-10 spread fell -9.9 basis points WoW to 165 bps. 1Q13TD, the 2-10 spread is averaging 167 bps, which is higher by 24 bps relative to 4Q12.

 

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Joshua Steiner, CFA

 



What Keith's Reading

Asia Stocks Poised for Biggest Advance Since September (via Bloomberg)

 

Central Banks Spewing Cash Must Plan Exit Timing, Rohde Says (via Bloomberg)

 

WTI Oil Set for First Monthly Drop Since October as Supply Rises (via Bloomberg)


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – February 28, 2013


As we look at today's setup for the S&P 500, the range is 87 points or 4.42% downside to 1449 and 1.32% upside to 1536.     

                                                                                                                          

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: 1.64 from 1.66
  • VIX  closed at 14.73 1 day percent change of -12.69%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:15am: Fed’s Lockhart to speak on banking in Atlanta
  • 8:30am: GDP Q/q, 4Q revision, est. 0.5% (prior -0.1%)
  • 8:30am: Personal Consumption, 4Q revision, est. 2.3%
  • 8:30am: Core PCE Q/q, 4Q revision est. 0.9% (prior 0.9%)
  • 8:30am: Init. Jobless Claims, Feb. 24 est. 360k (prior 362k)
  • 9am: NAPM-Milwaukee, Feb., est. 52.0 (prior 51.3)
  • 9:45am: Chicago Purchasing Mgr, Feb., est. 54.0 (prior 55.6)
  • 9:45am: Bloomberg Consumer Comfort, Feb. 24 (prior -33.4)
  • 10am: Freddie Mac weekly mortgage-rate survey
  • 10:30: EIA natural-gas storage change
  • 11am: Kansas City Fed Manf. Activ., Feb., est. -1 (prior -2)
  • 11am: New York Fed Executive VP McAndrews holds press briefing on household debt in New York
  • 12:30pm: Fed’s Raskin speaks on banking in Atlanta
  • 8:00pm: Fed’s Evans speaks in Des Moines, Iowa

GOVERNMENT:

    • 9am: House Armed Services subcmte hearing on impact of budget cuts on acquisition, programming
    • 10am: Joint Economic Cmte of Congress hearing on state of U.S. economy
    • House Judiciary Cmte panel meets on impact of Obama admin regulations on jobs, economy, global competitiveness

WHAT TO WATCH

  • Senate plans symbolic votes as $85b budget fight to begin
  • Boeing 3-Part fix won’t end 787 grounding quickly, FAA says
  • RBS said will sell a stake in Citizens unit in U.S. in ~2 yrs
  • Regency to buy Southern Union for $1.5b in shale move
  • Wal-Mart U.S. chief administrative officer Tom Mars to leave
  • Wal-Mart struggles to restock store shelves as U.S. sales slump
  • AOL COO Arthur Minson is said to weigh resignation
  • Sierra Nevada, Embraer win U.S. contract with $950m value
  • GM said to be targeting up to 20% growth for Volt cars this yr
  • Groupon forecast misses ests., raising pressure on CEO Mason
  • Ahold to buy back shrs as 4Q profit miss ests.
  • Lew confirmed as U.S. Treasury chief plunges into deficit fight
  • Tudor said to plan 1st equity funds since Pallotta left in ’09
  • J.C. Penney’s lowest sales in decades Show Johnson stumbling
  • Abe nominates Haruhiko Kuroda as next Bank of Japan governor
  • Draghi says ECB in no rush to tighten policy as inflation slows
  • U.S. foreclosure deals drop as lenders approve more short sales
  • MGA seeks to revive trade-secret lawsuit claims against Mattel
  • MBIA swaps rise as cites “substantial doubt” over unit

EARNINGS:

    • Canadian Imperial Bank of Commerce (CM CN) 5:35am, C$2.09
    • Catamaran (CCT CN) 6am, $0.35
    • Iron Mountain (IRM) 6am, $0.25
    • Newcastle Investment (NCT) 6am, $0.27
    • Sears Holdings (SHLD) 6am, $0.98
    • Valeant Pharmaceuticals (VRX CN) 6am, $1.21
    • Visteon (VC) 6am, $0.82
    • Royal Bank of Canada (RY CN) 6am, C$1.32
    • Toronto-Dominion Bank (TD CN) 6:30am, C$1.93
    • Ocwen Financial (OCN) 6:34am, $0.50
    • Kohl’s (KSS) 7am, $1.63
    • LKQ (LKQ) 7am, $0.23
    • WPX Energy (WPX) 7am, $(0.08)
    • MGIC Investment (MGIC) 7am, $(1.67)
    • ANSYS (ANSS) 7:09am, $0.74
    • Chico’s FAS (CHS) 7:15am, $0.20
    • AltaGas Ltd (ALA CN) 7:30am, C$0.47
    • Domino’s Pizza (DPZ) 7:30am, $0.60
    • Halcon Resources (HK) 7:30am, $0.03
    • George Weston (WN CN) 8am, C$1.09
    • Cablevision Systems (CVC) 8:30am, $0.09
    • Rowan (RDC) 8:45am, $0.48
    • Deckers Outdoor (DECK) 4pm, $2.58
    • Esterline Technologies (ESL) 4pm, $0.61
    • Gap (GPS) 4pm, $0.71
    • Sotheby’s (BID) 4pm, $1.10
    • Kodiak Oil & Gas (KOG) 4:01pm, $0.13
    • Molycorp (MCP) 4:01pm, $(0.30)
    • New Gold (NGD CN) 4:01pm, $0.13
    • Universal Health Services (UHS) 4:01pm, $0.93
    • Salesforce.com (CRM) 4:05pm, $0.40
    • SandRidge Energy (SD) 4:05pm, $0.00
    • Splunk (SPLK) 4:05pm, $0.02
    • Medivation (MDVN) 4:09pm, $(0.46)
    • McDermott International (MDR) 4:10pm, $0.23
    • Mentor Graphics (MENT) 4:10pm, $0.55
    • Omnivision (OVTI) 4:18pm, $0.41
    • Integrys Energy Group (TEG) 5:07pm, $0.95
    • National Bank of Canada (NA CN) 6pm, C$2.02
    • Endo Health Solutions (ENDP) Post-Mkt, $1.55
    • Great Plains Energy (GXP) Post-Mkt, $0.02

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Heads for Biggest Monthly Drop Since May as ETPs Slide
  • Rhodium Beating Platinum to Palladium on Car Sales: Commodities
  • Wheat Rises as U.S. Export Demand May Increase After Price Drop
  • WTI Oil Set for First Monthly Drop Since October as Supply Rises
  • Copper Swings Between Gains and Declines Amid Lack of Demand
  • Coffee Extends Gains in London on Reduced Sales; Sugar Advances
  • Palm Seen Dropping to Four-Year Low on MACD: Technical Analysis
  • Gold Demand in India Seen Rebounding After Import Tax Maintained
  • Coffee Exports From Indonesia Dropping Even With Record Crop
  • Mongolia Plans to Charge Rio’s Oyu Tolgoi Interest on Tax
  • Shell Sees Solar as Biggest Energy Source After Exiting Industry
  • India Left Gold Taxes Unchanged as Imports Continue, Group Says
  • Investors Dumping Gold Means Slump to $1,400: Chart of the Day
  • Palm Drops to Six-Week Low as Malaysian Inventories to Stay High

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 


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THE M3: NEPTUNE TIE TO BO XILAI; MGM COTAI; PANSY HO COMMENTS

The Macau Metro Monitor, February 28, 2013

 

 

JUNKET OPERATOR NEPTUNE GROUP LINKED TO BO XILAI CORRUPTION ALLEGATIONS CalvinAyre.com

Neptune’s name has surfaced in connection with Bo Xilai.  Bo, who remains in custody awaiting his own trial, has been identified as having financial links to Lian Zhuozhao aka Lin Cheuk Chiu, the brother of Neptune chairman Lin Cheuk Fung.  Chinese magazine Caijing claimed Lian was the real power behind Neptune and that Lian had helped numerous high-profile individuals launder money through underground banks.

 

Caijing claimed that Lian – dubbed “the king of gambling on the high seas” for his former role in running Neptune's casino-cruise line operations – had alleged ties to a number of prominent figures currently residing in Chinese jails.  Caijing now reports that Bo Xilai, his wife Gu Kailai and assorted family members are being investigated over alleged ties to VIP gaming rooms linked with Lian.

 

Given that the Caijing story has been widely republished amid a variety of Chinese media, including acknowledged pro-Beijing newspapers, it seems Beijing is indeed trying to send a message ahead of incoming Party boss Xi Jinping’s official first day in office next month, but that message may be directed at corrupt officials more than junket operators.

 

MGM CHINA STARTS CONSTRUCTION IN COTAI Macau Business

It will include 1,600 hotel rooms, as many as 500 gaming tables and 2,500 slot machines.  It is scheduled to open in mid-2016.

 

GAMING INDUSTRY EXPECTS ADJUSTMENT IN VIP/MASS MARKET RATIO, SAYS PANSY HO Macau Daily Times

MGM China's Pansy Ho said she believe the adjustment of VIP/mass ratio is a positive sign: “The gaming industry is expecting an adjustment in the ratio due to more facilities offered by casino-resorts. VIP has been growing much faster than the mass section but we can see a tendency that the discrepancy is narrowing and this is a positive development.... It doesn’t mean the VIP market will experience sudden changes (drops), but it’s not expected to maintain double-digit expansion.”  She expects a faster growing pace by the mass market as casino-resorts continue to add more non-gaming elements into their business portfolio.

 

She believed the new project would not have serious problems finding croupiers to operate despite the fact that several major projects are starting up in the Cotai area in coming years.  She expected the industry to coordinate in securing human resources. For the project as a whole, she estimated that 5,000 – 6,000 workers will be needed after its completion in 2016. 

 

Pansy Ho did not comment on Beijing’s new leadership, reportedly taking tougher actions against Macau junket operators in order to prevent mainland officials or criminals from coming to the city and using the casinos for money-laundering purposes. She stressed that these are mere news reports so far and that there’s been no clear indication or assertion by the (central) government on possible controls. 



Bull/Bear Narratives

“Evolution does not rely on narratives, humans do.”

-Nassim Taleb

 

That’s just a money quote from Taleb on page 207 of Antifragile. Apparently Jaime Dimon liked the book so much, he called his bank antifragile. I assume he wasn’t talking about the Bear Stearns part. If you’d like my review of the book, please send me a note.

 

Reviewing the Bullish Narrative for US and Asian stocks requires one to evaluate the bearish one. The big one our institutional clients debate with me comes from a player I respect, Francois Trahan. His Bearish Narrative is grounded in inflation concerns.

 

His call is a lot like mine was at the end of 2010. I get that inflation expectations rising would be bad. But our call is Strong Dollar will drive the opposite – Commodity Deflation. That’s not just a narrative; that’s precisely what we have been seeing for all of February.

 

Back to the Global Macro Grind

 

Strong Dollar = Commodity Deflation? That’s also what we have been seeing for 2013 YTD:

  1. US Dollar Index +2.3%
  2. CRB Commodities Index -1.0%
  3. SP500 +6.3%

Within the SP500’s +6.3% YTD return, the worst performing Sector ETF is Basic Materials (XLB) which is down -1.54% for February and underperforming badly at +2.34% YTD. If you want to be bearish on something, be bearish on Commodities and related stocks.

 

There’s also a Nouveaux Bear camp that thinks Commodities falling is the leading indicator that A) Global Economic Growth is going to slow and B) the US stock market is going down in flames. I have debated Dennis Gartman on this 2x on live TV in the last week.

 

Finally, there’s the central planning camp (led by Ben Bernanke) that is still bullish on the stock market’s “valuation”, and never thought we had the inflation we are deflating to begin with (Bernanke said in his testimony “I have the best track record on inflation since WWII”).

 

So, what is the Bearish Narrative?

 

A)     Trahan: Debauched Dollar will drive us back to the bubble highs in Oil (2008), Gold (2011), and Food Prices (2012)

B)      Gartman: Strong Dollar will drive Commodity Prices down, if Oil, Gold, Corn, etc go down, stocks are going down

C)      KM: I’m actually just bearish on The Taro Aso and The Bernank lying to uninformed people

 

I usually have a decent Bearish Narrative on something (like the Yen here), but the bear case for Asian and US stocks is all over the place right now. Maybe that’s why the only down day for stocks in the last 4 came on a catalyst that none of these bears had to begin with (Italian Election). That’s not a research call, that’s being right for the wrong reasons (otherwise known as luck).

 

Another Q: KM, what about The Correlation Risk (inverse correlation vs USD) call that you used to trade Macro on during 2010-2012? First, Correlation Risks are not perpetual. And, second, our intermediate-term TREND correlation model is changing, big time, right now:

  1. Intermediate-term TREND correlation between US Dollar and CRB Index = -0.96 (short Commodities!)
  2. Intermediate-term TREND correlation between US Dollar and SP500 = +0.33
  3. Intermediate-term TREND correlation between US Dollar and MSCI Asia (Equities) = +0.52

In other words, both the Americans and the Chinese are loving Strong Dollar in more ways than one. It’s taking down Energy and Food Inflation. And it’s a tax cut that our central planning overlords are unable to provide.

 

That’s great for the one thing we haven’t had, sustainably, under either the Keynesian Bush or Obama regimes – real (inflation adjusted) economic growth. Of course, the government is always my Bearish Narrative, but I think my bullish one for stocks is still intact.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $110.67-112.68 (Oil is bearish TRADE and TREND now; a very bullish catalyst for the economy), $81.28-82.13, 91.71-94.67, 1.85-1.96%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bull/Bear Narratives - Chart of the Day

 

Bull/Bear Narratives - Virtual Portfolio


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%
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