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INITIAL CLAIMS: AUTOS HELPED BUT THE CORE TRENDS REMAIN VERY STRONG

Takeaway: Another week of solid labor market improvement. Take advantage of still-cheap, credit-levered value names on the long side on this data.

Auto Tailwinds, But Robust Nevertheless

The labor market continues to improve at an accelerating rate. This week, rolling NSA initial claims were 10.6% below their level last year. This compares with the 10.1% YoY improvement posted in the prior week and 9.5% improvement in the two weeks prior to that. There are a few potential narrative overlays (i.e. explanations) for the amount of strength we're seeing in the data. The first is ACA, i.e. Obamacare, prompting the hiring of more part-time and temp workers, on the margin. The second is the auto industry, which normally shuts down its production plants for two weeks around July 4th. Auto workers are entitled to file initial unemployment claims for these two weeks. This year, however, due to stronger new car demand and critical, new model rollouts from GM and Chrysler, many of these plants have remained open. For instance, Ford said back in May that 21 of its North American factories will shut for only one week this summer. GM said it would idle its factories for only short periods, and Chrysler said it would close just 4 of its 10 North American assembly plants during the traditional two-week break. While it's tough to know how many workers this positively affected, it is likely to exert some upward pressure on SA claims in the week or two ahead.

 

The bottom line here, however, is that the labor market continues to mend at an impressive rate. We think credit-levered, value Financials (BAC, COF) remain optimal ways to play this on the long side. BAC's results on Tuesday were very strong, fueled primarily by housing's improvement and its associated benefits to falling lititgation costs, but underpinning that is the recovery in labor. COF reports tonight. We recently published a note outlining our bullish view on COF across all three durations (short, intermediate and long term).

 

The Data

Prior to revision, initial jobless claims fell 26k to 334k from 360k WoW, as the prior week's number was revised down by -2k to 358k.

 

The headline (unrevised) number shows claims were lower by 24k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -5.25k WoW to 346k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.6% lower YoY, which is a sequential improvement versus the previous week's YoY change of -10.1%

 

INITIAL CLAIMS: AUTOS HELPED BUT THE CORE TRENDS REMAIN VERY STRONG - 1

 

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INITIAL CLAIMS: AUTOS HELPED BUT THE CORE TRENDS REMAIN VERY STRONG - 4

 

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INITIAL CLAIMS: AUTOS HELPED BUT THE CORE TRENDS REMAIN VERY STRONG - 14

 

Yield Spreads

The 2-10 spread fell -7.4 basis points WoW to 219 bps. 2Q13TD, the 2-10 spread is averaging 184 bps, which is higher by 13 bps relative to 1Q13.

 

INITIAL CLAIMS: AUTOS HELPED BUT THE CORE TRENDS REMAIN VERY STRONG - 15

 

INITIAL CLAIMS: AUTOS HELPED BUT THE CORE TRENDS REMAIN VERY STRONG - 16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


[PODCAST] BERNANKE "VIAGRA TRADE" IS OVER

Hedgeye CEO Keith McCullough says it's "bye-bye" to Bernanke's little blue pills. The Viagra trade is over. Among other pieces of post-Viagra investing advice, McCullough says beware the Bubonic plague trade which is Gold. 

 

 

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INVITE: CAT SHORT REVIEW/UPDATE TODAY @1PM

Takeaway: Please join us today at 1PM for a review and update on our CAT short thesis. Dial-in and materials below.

INVITE: CAT SHORT REVIEW/UPDATE TODAY @1PM - vf1

 

We will be presenting a flash conference call reviewing our short thesis on Caterpillar Inc. (CAT) titled "Short CAT - What You Need To Know Now" on Thursday, July 18th at 1:00pm EDT. We have published several pieces outlining our short thesis on CAT. After a decade of being a primary beneficiary of the boom in commodity prices CAT may be in a very vulnerable position.

 

 

OBJECTIVE

Detail our short thesis on CAT, why the Company will struggle to meet company targets and street expectations.

 

CALL OVERVIEW 

  • Super-cycle Downside: Resources-related capital spending is likely to decline much more than estimates expect
  • Commodity Markets/Emerging Markets:  Even if emerging markets rebound, which we do not see, commodity supply remains a major headwind
  • Acquisitions:  CAT not only overpaid for ERA and Bucyrus, but also may have benefited from the flexibility in purchase accounting
  • Receivables Growth and Inventories:  High inventories and rapid receivables growth have left CAT with weak free cash flow and other challenges
  • Abandon 2015 Targets?  That would be fast, since they were established in the fall of 2012
  • Valuation:  A low-ish multiple typically means peak earnings, not cheap equity


CALL DETAILS

  • Toll Free Number:  
  • Direct Dial Number:
  • Conference Code: 428976#
  • Materials: CLICK HERE


CONTACT

Please email if you have any questions.


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Farewell My Blue Pill Friend

Client Talking Points

JAPAN

Smell that? It's the scent of Burning Yens back in the air with the USD stabilizing on Bernanke not being dovish enough and Team Abe and Aso ready to win an election this weekend. Cue the Nikkei, which is on a nice +5 day run. It was up another +1.3% overnight. Japan is up +43.8% year-to-date. It's the best looking (liquid) equity market in the world right now next to the USA.

UK

Slow and steady with some refreshing accelerations ... that’s the UK growth data as of late. The FTSE? She likes it. UK Retail Sales showing #GrowthAccelerating again in June to +2.2% year-over-year from +1.9%. I have the FTSE at #3 "Best Looking" in the deep and liquid Equity market standings next to USA and JAPAN right now.

OIL

The recent Viagra rallies in Gold, Oil and Copper, etc. are over as of Bernanke’s testimony yesterday. Thank God. Now we just need to see this gargantuan net long (futures/options) position in crude wear off and Down Oil would be your next catalyst for SPX 1700. Long-term TAIL risk line for Brent is 107.88/barrel. 

Asset Allocation

CASH 54% US EQUITIES 16%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road

TWEET OF THE DAY

Bernanke didn’t deliver the blue pills yesterday; commodity reflations backing off is a very good thing

@KeithMcCullough

QUOTE OF THE DAY

“I only take Viagra when I am with more than one woman.”

- Jack Nicholson

STAT OF THE DAY

In 2007, there were 500 million internet-connected devices - about 1 for every 20 people on the planet. In 2010, that number grew to 35 billion, or about 5 per person. By 2013, may grow to 1 trillion devices, or 140 devices per person. (PCMag)


July 18, 2013

July 18, 2013 - dtr

 

BULLISH TRENDS

July 18, 2013 - 10yr

July 18, 2013 - spx

July 18, 2013 - ftse

July 18, 2013 - nik

July 18, 2013 - dxy

 July 18, 2013 - oil

BEARISH TRENDS

July 18, 2013 - VIX

July 18, 2013 - euro

July 18, 2013 - yen

July 18, 2013 - natgas
July 18, 2013 - gold

July 18, 2013 - copper


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – July 18, 2013


As we look at today's setup for the S&P 500, the range is 38 points or 1.07% downside to 1663 and 1.20% upside to 1701.                             

                                                                                                  

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.18 from 2.19
  • VIX closed at 13.78 1 day percent change of -4.44%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init Jobless Claims, July 13, est. 345k (prior 360k)
  • 9:45am: Bloomberg Economic Expectations, July (prior -1)
  • 9:45am: Bloomberg Consumer Comfort, July 14 (prior -27.3)
  • 10am: Fed’s Bernanke delivers semi-annual report to Senate
  • 10am: Philadelphia Fed Index, July, est. 8 (prior 12.5)
  • 10am: Leading Indicators, June, est. 0.3% (prior 0.1%)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 1pm: U.S. to sell $15b 10Y TIPS
  • G-20 Finance Ministers’ and Central Bank Governors’ deputies meet in Moscow (through July 19)

GOVERNMENT:

    • Bernanke delivers his semi-annual monetary policy report, known as Humphrey-Hawkins, to Senate Banking Cmte, 10am
    • Obama speaks on health-care law, 11:25am
    • Obama attends ambassador credentialing ceremony
    • Vice President Joe Biden attends CAP event on U.S. policy toward Asia-Pacific region, 1pm
    • House, Senate in session
    • Treasury IG for Tax Admin J. Russell George testifies on probe of IRS political targeting of tax-exempt orgs. at Cmte on Oversight and Govt Reform hearing, 11am
    • House Judiciary Committee panel holds hearing on Voting Rights Act following Supreme Court’s ruling, 11am
    • Senate Banking Cmte votes on Mel Watt to be FHFA director; Jason Furman to be CEA chairman; Kara Stein, Michael Piwowar to be SEC members; Richard Metsger to be a NCUA member; Mary Jo White for SEC chairman, 10:30am
    • House Financial Services Cmte holds hearing on housing finance, 1pm

WHAT TO WATCH         

  • Dell $24.4b buyout plan is a nail-biter as vote looms
  • Icahn “definitely” has a candidate for Dell CEO
  • Almost 30% of Dell shares to vote against deal, WSJ Says
  • Intel rev forecast misses some ests; EBay 3Q view below est
  • IBM raises yr forecast after earnings exceed ests
  • AmEx record profit beats ests as card spending climbs
  • China June new-home prices rise Y/y in 69 cities
  • U.K. retail sales rose for 2nd month in June
  • Gupta ordered to pay $13.9m in SEC insider-trading case
  • PepsiCo said not to plan to acquire Mondelez at Peltz’s urging
  • JPMorgan, FERC near settlement on electricity mkt probe: WSJ
  • Netflix’s “House of Cards” may get Emmy nomination
  • Credit Suisse sued for $350m over marketing resort loans
  • GM delays Chevy Cruze debut by a yr, Reuters says

EARNINGS:

    • BB&T (BBT) 5:45am, $0.74
    • Huntington Bancshares (HBAN) 5:55am, $0.16
    • UnitedHealth Group (UNH) 6am, $1.25
    • Danaher (DHR) 6am, $0.87
    • AutoNation (AN) 6:15am, $0.73
    • KeyCorp (KEY) 6:17am, $0.20
    • BlackRock (BLK) 6:30am, $3.81
    • Fifth Third (FITB) 6:30am, $0.42
    • Quest Diagnostics (DGX) 6:31am, $1.09 - Preview
    • Hubbell (HUB/B) 6:58am, $1.30
    • Philip Morris International (PM) 7am, $1.41
    • Baxter International (BAX) 7am, $1.13
    • Johnson Controls (JCI) 7am, $0.75
    • Omnicom Group (OMC) 7am, $1.08
    • Dover (DOV) 7am, $1.29
    • AMR (AAMRQ) 7am, $0.80
    • Scholastic (SCHL) 7am, $0.82
    • PPG Industries (PPG) 7:10am, $2.35
    • Morgan Stanley (MS) 7:15am, $0.43 - Preview
    • Verizon Communications (VZ) 7:30am, $0.72 - Preview
    • Sonoco Products (SON) 7:30am, $0.58
    • Fairchild Semiconductor (FCS) 7:30am, $0.08
    • Shoppers Drug Mart (SC CN) 7:45am, C$0.72
    • Union Pacific (UNP) 8am, $2.35
    • Blackstone Group (BX) 8am, $0.48
    • Sherwin-Williams (SHW) 8am, $2.57
    • Amphenol (APH) 8am, $0.94
    • upervalu (SVU) 8am, $0.04
    • Cypress Semiconductor (CY) 8am, $0.07
    • Marriott Vacations Worldwide (VAC) 8am, $0.48
    • Genuine Parts Co (GPC) 8:49am, $1.21
    • Nucor (NUE) 9am, $0.30 - Preview
    • Safeway (SWY) 9am, $0.51
    • Google (GOOG) 4pm, $10.80 - Preview
    • Stryker (SYK) 4pm, $1.03 - Preview
    • Cubist Pharmaceuticals (CBST) 4pm, $0.37
    • Align Technology (ALGN) 4pm, $0.28
    • Microsoft (MSFT) 4:01pm, $0.75
    • Chipotle Mexican Grill (CMG) 4:01pm, $2.81
    • Athenahealth (ATHN) 4:01pm, $0.22
    • People’s United Financial (PBCT) 4:02pm, $0.19
    • Capital One Financial (COF) 4:05pm, $1.73
    • Intuitive Surgical (ISRG) 4:05pm, $4.24
    • Associated Banc-Corp (ASBC) 4:05pm, $0.26
    • Rambus (RMBS) 4:05pm, $0.04
    • Advanced Micro Devices (AMD) 4:15pm, $(0.12)
    • Skyworks Solutions (SWKS) 4:30pm, $0.53
    • Celanese (CE) 5:15pm, $1.16

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Trades Near One-Week High as U.S. Crude Stockpiles Decline
  • Wells Fargo Overtakes JPMorgan as Financing Expands: Commodities
  • Gold Swings Between Gains and Drops Following Bernanke Comments
  • Currency to Oil Rates Targeted for Tougher Rules After Libor
  • Copper Swings in London Trading Following Testimony by Bernanke
  • Jewelers in India to Seek Idle Household Gold to Cut Imports
  • Sugar Climbs to One-Week High on Brazil Real, Rain; Cocoa Rises
  • Siberian Grain Seeds Seen at Weight Risk Following Sowing Delay
  • Dated Brent Oil Price Ascends to 16-Week High: BI Chart
  • Temasek Racing Exxon to Build Biggest LNG Stash: Southeast Asia
  • Rebar Advances for Seventh Day Amid Rally in Iron Ore Prices
  • France’s Rouen Port Grain Exports Fall 79% as U.K. Is Sole Buyer
  • Carbon Supply Crunch Set to Extend Longest Rally: Energy Markets
  • Tanaka’s Quarterly Gold Sales Exceed Buying for 1st Time in Year

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

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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