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Morning Reads From Our Sector Heads

Howard Penney (Restaurants):

 

Panera testing donation-based menu item (via Nation's Restaurant News)

 

Brian McGough (Retail):

 

Lululemon Dispatches Employees to Overhaul Offshore Production (via Sports One Source)

 

Kevin Kaiser (Energy):

 

Midstates Petroleum to Acquire Oil-Weighted Properties in the Western Anadarko Basin in Oklahoma and Texas (via Midstates Petroleum)

 

Peyto Exploration and Development Corp. President's Monthly Report (via Peyto)

 

Josh Steiner (Financials):

 

Bond Traders Club Loses Cachet in Most Important Market (via Bloomberg)

 

Fed’s Williams: Bond Purchases May Be Tapered by This Summer (via WSJ)

 

Government Watchdog Faults Regulators Over Foreclosure Review (via NYT Dealbook)

 

 

 


INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS?

Takeaway: Labor conditions in the latest week slowed significantly on a seasonally adjusted basis and slightly on a non-seasonally adjusted basis.

This morning's awful seasonally adjusted initial jobless claims print appears to have been negatively impacted by the Easter week holiday. Taken together with the weak ADP report and the weak Challenger report, the market is clearly developing a bearish bias in the short term around labor conditions. We'll see what tomorrow's river card brings.

 

The non-seasonally adjusted claims number was essentially flat week-over-week. Looking at the trend in the non-seasonally adjusted data, it's still trending better year-over-year, but only just barely. This week's print was better by just 0.5% vs. the same week last year. The trend in this dynamic over the last five weeks has been: -0.5%, -2.4%, -5.8%, -6.1%, -8.9%. Clearly the rate of year-over-year improvement has been slowing notably over the past month. A silver lining is that the trend in rolling NSA claims YoY is less negative, as we show in the second chart of this note. 

 

The bottom line is this: labor conditions aren't as bad as they appear (in the SA numbers), but are, in fact, showing signs of genuine cooling.

 

The Data

Initial jobless claims rose 28k to 385k from 357k WoW. The previous week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 10.75k WoW to 354.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -3.8% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -5.9%

 

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Yield Spreads

The 2-10 spread fell -6.9 basis points WoW to 160 bps. In 1Q13, the 2-10 spread is averaging 167 bps, which is higher by 25 bps relative to 4Q12.

 

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INITIAL CLAIMS - IS THE LABOR MARKET REALLY AS SOFT AS IT SEEMS? - 16

 

 

Joshua Steiner, CFA


THE M3: TEMPORARY LONGER GONGBEI BORDER HOURS

The Macau Metro Monitor, April 4, 2013

ADDITIONAL TWO HOUR TRIAL OPENING FOR GONGBEI BORDER STARTS TODAY, GOV'T WANTS 24-HR OPERATION Macau Daily Times

The Gongbei border gate on the Zhuhai side is running for longer from today until Saturday (April 6) as a temporary trial measure.  Under the approval, the Gongbei border will open at 6am and close at 1am for three successive days for the Ching Ming Festival, from today onwards.  “We hope to realize 24-hour operations for the border gates, but we have to discuss with other related parties, such as the central government and the Zhuhai side,” Alexis Tam said, a spokeman for the MSAR government.

 



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Money For Nothing

Client Talking Points

Ease Into It

Keith mentioned that this was coming and it came like a bat out of hell: the Bank of Japan will inject $1.4 billion into the economy in less than two years. As a result, the Yen bit the dust, the Nikkei 225 continued its meteoric rise (+5.2% over the last two days) and US stocks applauded as the futures rose in anticipation of the announcement. This is what happens when you print more money and promise to throw a bunch of it at anything that moves; people get excited and it helps inflate stocks around the world.

Navigating Europe

Europe is looking quite bearish, but it's important to know which index to play if you're going to short it. Germany's DAX index and the UK's FTSE 100 have held above our TRADE and TREND lines of support since the beginning of April. We wouldn't short these indices but the EuroStoxx 50 is looking ripe for a short very soon, though. Since we stick to a process here at Hedgeye, we're going to wait for our signals to tell us when to short the index no matter how tempting it may be to hop right in. The economic data (particularly, some of the March PMI numbers) supports our bearish thesis and if we get another country like Cyprus that needs a bailout, the selling will come hard and fast.

Asset Allocation

CASH 18% US EQUITIES 30%
INTL EQUITIES 25% COMMODITIES 0%
FIXED INCOME 3% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
DRI

Darden stands to be a beneficiary from a housing recovery and an improved employment picture, which boosts casual dining trends. The company's net income declined on its recent earnings report but beat the Street's expectations.

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

"Yen down 2.54% against USD as BoJ intends to double size of its balance sheet. ow.ly/i/1OTde #EcoBrief" -@JoeBrusuelas

QUOTE OF THE DAY

"History is indeed little more than the register of the crimes, follies and misfortunes of mankind." -Edward Gibbon

STAT OF THE DAY

Bank of Japan to pump $1.4 trillion into economy as part of an unprecedented stimulus package.


Independent Minds

This note was originally published at 8am on March 21, 2013 for Hedgeye subscribers.

“Blows must decide whether they are to be subject to this country or independent.”

-King George III

 

And they did… the British lost and the Americans won their independence. “Jefferson threw himself into whatever came his way. He was hardheaded, not rhetorical. He believed the hour called for action, not rhetoric.” (John Meacham’s Thomas Jefferson, pg 79)

 

The founding principles of this country aren’t romantic. They are real. And it started with a fight. People used to stand up for something and really argue for it. Passion and pride wasn’t always politically correct.

 

As our enemies have found we can reason like men, so now let us show them we can fight like men also.” –Jefferson, 1775

 

Back to the Global Macro Grind

 

After 5 long years of war versus the #OldWall, independent minds are winning. This isn’t about being bullish or bearish. It’s about being transparent as opposed to opaque; it’s about being accountable as opposed to arcane.

 

As Patrick Henry said, “give me liberty, or give me death.” Economic freedom versus hereditary right is an old war. We’re just fighting it on a new front. Revolutions are rarely pretty. This one is no exception.

 

So upward and onward we go. Today isn’t unlike any other day where, God willing, we all put our feet on the floor at the top of the risk management morning - one shoe on a time - and decide where we think we can be less wrong than right.

 

This morning’s Global Macro Research and Risk Signals are decidedly mixed – let’s look at Asia first:

 

A)     China’s flash PMI for MAR accelerates to 51.7 (vs 50.4 FEB); Shanghai Comp holds bullish TRADE/TREND

B)      South Korea is (allegedly) cyber attacked by China, and the KOSPI closes -0.4% (bearish TRADE/TREND)

 

How about Europe?

 

A)     German Manufacturing PMI for MAR slows to 48.9 (vs 50.3 FEB); but German DAX holds TRADE/TREND support

B)      France’s Services PMI tanks to 41.9 in MAR (vs 43.7 FEB); French CAC snaps TRADE support (again) of 3864

 

USA?

 

A)     US Housing Starts ripped another +3% sequentially in FEB, but what will this morning’s Existing Homes print bring?

B)      Housing stocks (ITB) led gainers +2.9% yesterday, making a fresh YTD high as the SP500 closed -0.3% inside of hers

 

All the while, on the interconnected risk front:

  1. US Dollar Index is having its 6th up week in the last 7
  2. CRB Commodities Index is having its 6th down week in the last 7
  3. Correlation Risk between USD/CRB and USD/SPY continue to diverge, big time

Immediate-term TRADE (inverse correlations) between USD and CRB (Commodities):

  1. USD vs Brent Oil = -0.98
  2. USD vs Copper = -0.95
  3. USD vs Gold = -0.69

Immediate-term TRADE (positive correlations) between USD and Stocks:

  1. USD vs MSCI Asia = +0.71
  2. USD vs SP500 = +0.63
  3. USD vs EuroStoxx600 = -0.16

Oops. That last one wasn’t a positive correlation – a month ago European stocks had a barely positive correlation to the US Dollar; now that’s melting away. Other than how bad it is for a socialized economic zone having its currency debauched by money launderers in Cyprus (and Italian criminals holding other parts of the money bags), I can’t think of any fundamental reason why Europe sucks economically.

 

And why is the correlation between the US Dollar and Emerging Market (MSCI EM Index) not positive? It’s actually going really negative (-0.70 vs USD on a 60 day correlation basis). Does that make sense? Sure does. That’s why we aren’t long EM. If #StrongDollar continues to crush Commodities, guess who loses? “Emerging Markets” (like Brazil, whose stock market is basically a commodity-linked index).

 

What about Gold? On a 60-day basis, the inverse correlation to the USD was like it is for Copper and Oil right now (wacky high). But this morning it’s less so. Is that interesting? Sure. What do I do with that? Well, I’ll tell you what I won’t do today – and that’s short Gold. I’d much rather short Oil - not only from a correlation perspective, but because the net long position in Oil (CFTC data) remains much larger.

 

There are so many things to consider - so many signals and pieces of data to incorporate into our decision making process; so many new technologies and mathematical concepts to apply to our analysis. Embracing The Uncertainty of it all is what makes us different. It allows for freedom of thought – and the humility to change our minds. Long live the independent research revolution.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1593-1615, $107.23-109.26, $3.38-3.51, $82.61-83.31, 94.19-97.02, 1.89-1.97%, 10.73-14.51, and 1546-1565, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Independent Minds - Chart of the Day

 

Independent Minds - 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 80.28%
  • SHORT SIGNALS 78.51%
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