prev

Still Bullish: SP500 Levels, Refreshed

Takeaway: Embrace crisis – the real crisis appears to be in crisis-calling itself.

POSITIONS: 14 LONGS, 7 SHORTS @Hedgeye

 

The all-time closing highs have been elusive, but that just gives Professional Top Callers (PTCs) more company. I can’t count how many people are trying to call the top at this point (and I can count).

 

The fulcrum point of our bull case on US Growth (#StrongDollar) remains not only intact, but improving by the week. This is the 7th week in the last 8 that the US Dollar Index is up wk-over-wk. And combined with both US employment and housing trends, we think that’s a pro-growth signal.

 

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

 

  1. Immediate-term TRADE overbought = 1569
  2. Immediate-term TRADE support = 1555
  3. Intermediate-term TREND support = 1494

 

In other words, both the US Dollar and the US Stock Market remain in what we call Bullish Formations (bullish TRADE, TREND, and TAIL) as our immediate-term Risk Range continues to signal higher-lows and higher-highs for the SP500.

 

Don’t buy at the overbought line. Buy them when they are red. Embrace crisis – the real crisis appears to be in crisis-calling itself.

 

Have a Happy Easter Weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Still Bullish: SP500 Levels, Refreshed - MyChart


INITIAL CLAIMS & GDP: CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE

Takeaway: No Surprises in the final 4Q12 GDP numbers. Initial Claims continue to improve although the rate of improvement slowed in the latest week.

GDP:  The Final GDP numbers for 4Q12 came in largely as expected with the final revision reflecting 0.4% growth for the quarter vs. expectations of +0.5% and against the preliminary and 1st  revision numbers of -0.1% and +0.1%, respectively.  A summary of the final numbers and revision impacts below.   

 

Revision Breakdown - All changes are vs. 1st Revision:

  • C (Consumption):  Contribution to Chg in GDP = revised down -19 bps;  Final Q/Q growth = +1.8%
  • I (Investment):  Contribution to Chg in GDP = revised higher by +37 bps.   Final Q/Q growth = +1.3%,   Residential Investment & Non-residential fixed investment Growth of 17.6% and 14.0%, respectively
  • G (Government):  Contribution to Chg in GDP = essentially flat, revised lower by -3 bps.   Final Q/Q growth = -7.0%
  • E (Net Exports): Contribution to Chg in GDP = revised higher by +9 bps. 
  • Inventories:  Change in Private Inventories revised +3 bps  
  • Real Final Sales (Demand for U.S. Products ex Inventory change): Final Q/Q Growth = +1.9%, revised +20 bps

 

INITIAL CLAIMS & GDP:  CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE - GDP Summary 4Q12 Final 032812

 

 

INITIAL CLAIMS:  STILL IMPROVING, ALBEIT AT A SLIGHTLY LOWER RATE

Below is the detailed breakdown of the claims data from our head of Financials, Josh Steiner.  If you would like to setup a call with Josh or trial his research, please contact 

 

The good news is the labor market is still improving. The bad news is the rate of improvement isn't as strong as it had been. Rolling non-seasonally adjusted claims were lower YoY by 5.9% this week, as compared with 7.2% in the prior week. This rate of improvement is solid, but obviously a sequential deceleration. On a single week basis, the improvement slowed to -2.4%, down from -5.8% in the prior week. We place less emphasis on week to week moves as they've historically had significant volatility. The bottom line: the labor market is still improving, which is supportive for both credit quality and housing's momentum.

 

On the seasonally-adjusted side, the optical claims number was worse than expected rising 21k before revision to 357k. This brought the rolling SA print to 343.5k, an increase of 2.5k WoW. As this is what the market is paying attention to, it's logical that we're seeing the long end of the yield curve fall. This is incrementally bullish for housing, but obviously a continuation of headwinds on the margin. As a reminder, the SA data is now facing a small, but growing headwind over the coming six months. This headwind will peak in August 2013 and then turn into a tailwind for a final year. 

 

INITIAL CLAIMS & GDP:  CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE - JS 1

 

INITIAL CLAIMS & GDP:  CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE - JS 2

 

INITIAL CLAIMS & GDP:  CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE - JS 3

 

INITIAL CLAIMS & GDP:  CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE - JS 4

 

INITIAL CLAIMS & GDP:  CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE - JS 5

 

INITIAL CLAIMS & GDP:  CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE - JS 6 

 

INITIAL CLAIMS & GDP:  CLAIMS STILL IMPROVING, ALBEIT AT A SLOWER RATE - JS 7

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 

 


How Many Corn Acres Get Planted This Year?

At noon today the USDA will issue its March planting intentions for the 2013 U.S. growing season.  We will focus on corn, as per usual.  Consensus calls for 97.465 million acres of corn to be planted this year, and we think there may be modest upside to that number.  That’s a big number, not an all time high, but it is the largest acreage that anyone that didn’t vote for FDR has seen.



Obviously, the yield is the key number going forward, and we think the soil moisture condition has shown some improvement in recent weeks, though still below where it should be for this time of the year.  However, the forecast is for some weather events over the next several weeks in a couple of regions where moisture is needed, so we remain encouraged.



However, one additional concern that we have beyond moisture at this point is that planting may be delayed – farmers don’t need to rush out and the ground is still too cold in many regions for planting to begin.  If the weather turns cold, early planted corn can rot as the re-frozen field melts and warms.

 

The good news is that planting can happen very quickly in the right conditions, so we aren’t all that worried if it appears that the crop is getting in the ground too slowly.

 

We continue to think that ADM represents an inexpensive look at the progress of the U.S. corn crop – we see downside in the name back toward book value ($29.05 per share).  Keep in mind, that as much as a disaster the U.S. corn crop was last year and the associated negative impact it had on ethanol and merchandise and handling margins at ADM, the company still managed to earn $2.25.  If things break “right” with the corn crop and incremental acres produce a “reasonable” yield (anything above 145 bushels per acre), we see upside in ADM toward $38/$39 per share.

 

How Many Corn Acres Get Planted This Year? - Corn Acreage

 

Call with questions,

 

Rob

 

Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

E:

P:

 

Matt Hedrick

Senior Analyst






investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

A Telling Chart

Takeaway: Here's a very telling chart that looks at the relationship between the yield on the 10-year Treasury and weekly jobless claims.

Below you'll see a chart that shows the yield of the US Treasury since November, when Hedgeye made its growth call, and a rolling four-week average of the rate of decline of non-seasonally adjusted (NSA) jobless claims. (Note that we have inverted the 10-year yield curve to show the relationship between yields and NSA claims more clearly.)

 

What the chart shows is that as 10-year yields rise, the rate at which NSA claims decline also rises. In other words, improving jobless claims numbers and a rising 10-year yield are moving at similar rates and directions, which indicates overall economic growth.

 

A Telling Chart - 10Y vs NSA Claims  2


HOUSING: Getting Clarity

Takeaway: With so much data flow on housing sometimes it's tough to keep track of it all. We think this chart tells the story well.

This note was originally published March 27, 2013 at 16:33 in Financials

We like the chart below a lot. It tells the current story of housing succinctly in a way that everyone can easily understand. The x-axis shows inventory of homes for sale in millions of units monthly back to 2001. The y-axis is the pending home sales index reading. The bubble size shows the next twelve months home price change based on those levels of supply and demand. Not surprisingly, high demand coupled with low inventory produces big blue bubbles (strong home price appreciation), while the opposite produces big white bubbles (strong home price depreciation).

 

The obvious takeaway is that we're currently in a very favorable dynamic for prices, as shown in the orange circle. The orange circle shows current inventory and volume, but for bubble size, we've used LTM (as opposed to NTM) price change, which was +9.7% through February 2013 according to Corelogic. Note that the orange bubble is smaller than most of the other bubbles in the same area, suggesting price appreciation may accelerate from here.

 

Another takeaway is the inverse relationship between supply and demand. Inventories are negatively correlated with demand, which might seem at odds with recent commentary in the market about how low inventories are holding back transaction volume growth. Consider the range of volume that has accompanied the current level of supply historically. It's produced a volume range on the pending home sales index of 96 to 131. Currently we're near the low end of the range at 105. In other words, we've seen sales activity levels as much as 25% higher than they are today based on the same level of inventory, so we don't buy the NAR argument that it's inventory holding back volume. That said, there are likely other factors such as more stringent underwriting, which we consider a good thing.

 

HOUSING: Getting Clarity - bubble chart

 


INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE

Takeaway: After several weeks of accelerating improvement in the labor market, this week saw conditions slow down a bit.

The good news is the labor market is still improving. The bad news is the rate of improvement isn't as strong as it had been. Rolling non-seasonally adjusted claims were lower YoY by 5.9% this week, as compared with 7.2% in the prior week. This rate of improvement is solid, but obviously a sequential deceleration. On a single week basis, the improvement slowed to -2.4%, down from -5.8% in the prior week. We place less emphasis on week to week moves as they've historically had significant volatility. The bottom line: the labor market is still improving, which is supportive for both credit quality and housing's momentum.

 

On the seasonally-adjusted side, the optical claims number was worse than expected rising 21k before revision to 357k. This brought the rolling SA print to 343.5k, an increase of 2.5k WoW. As this is what the market is paying attention to, it's logical that we're seeing the long end of the yield curve fall. This is incrementally bullish for housing, but obviously a continuation of headwinds on the margin. As a reminder, the SA data is now facing a small, but growing headwind over the coming six months. This headwind will peak in August 2013 and then turn into a tailwind for a final year. 

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 1

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 2

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 3

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 4

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 5

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 6

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 7

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 8

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 9

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 10

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 11

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 12

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 13

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 14

 

Yield Spreads Narrow

The 2-10 spread fell -9.8 basis points WoW to 161 bps. 1Q13TD, the 2-10 spread is averaging 168 bps, which is higher by 25 bps relative to 4Q12.

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 15

 

INITIAL CLAIMS - STILL IMPROVING, ALBEIT AT A SLIGHTLY MORE MODEST RATE - 16

 

 

Joshua Steiner, CFA

 


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next