prev

Jobless Claims: Trend Is Your Friend

Takeaway: The number of people filing initial jobless claims continues to drop at an accelerating rate year-over-year.

The Most Important Economic Data Series We Follow? It Remains ... Green


For many weeks now, Hedgeye Risk Management has been highlighting the accelerating strength in the US labor market. This week is no exception. Non seasonally adjusted (NSA) initial jobless claims were better year-over-year (YoY) by 11.2% this week, compared with 10.1% and 10.9% in the prior two weeks. Meanwhile, the 4-week rolling average NSA claims was lower YoY by 10.5%, and improvement from the prior week's 10.2%, and the second strongest rate of YoY improvement we've seen year-to-date. 

 

Jobless Claims: Trend Is Your Friend - steiner1

 

The bottom line takeaway here is that the labor market is, in fact, stronger than most think and financials that are positively levered to ongoing improvement in labor conditions should continue to outperform. Moreover, given the growing shadow of uncertainty painting the recent tape, we'd look to this data series more than any other as a green light for buying weakness. 

 

The Data

Prior to revision, initial jobless claims fell 5k to 331k from 336k week-over-week (WoW), as the prior week's number was revised up by 1k to 337k.

 

The headline (unrevised) number shows claims were lower by 6k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.75k WoW to 331.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.5% lower YoY, which is a sequential improvement versus the previous week's YoY change of -10.2%


Morning Reads on Our Radar Screen

Takeaway: A quick look at some stories on Hedgeye's radar screen.

Keith McCullough  - CEO

Economy in U.S. Grew More Than Forecast in Q2 (via Bloomberg)

Jobless-claims trend stays near six-year low (via MarketWatch)

Obama: 'No decision yet' on Syria strike (via BBC)

San Bernardino Wins Eligibility for Bankruptcy (via NY Times)

Brothels in Nevada Suffer as Web Disrupts Oldest Trade (via Bloomberg)

Indonesia Raises Interest Rate as India Aids Rupee (KM note: finally, a smart policy move to fight #AsianContagion > via Bloomberg) 

 

Morning Reads on Our Radar Screen - yu7

 

Josh Steiner – Financials

Bad news: CNBC hits 20-year ratings nadir (via NY Post)

 

Howard Penney - Restaurants

Fast-food strikes set for cities nationwide (via Yahoo)

Subway franchisees decry deep discounts (via NY Post)

Smashburger hires firms to seek growth capital (via NRN)

 

Jonathan Casteleyn – Financials

Dollar Gains With U.S. Stocks as Treasuries Drop on GDP (via Bloomberg)

How Twitter Dodged Attack That Took Down New York Times (via Bloomberg)

 

Todd Jordan – Gaming

MBS scores landmark victory in casino debt collection case (via Business Times)

 

Kevin Kaiser – Energy

Bubonic plague back? Teen’s death sparks fears of Asia outbreak (via RT)


INITIAL CLAIMS: LIKE A GLOVE

Takeaway: The Trend is (still) your friend in the labor market as initial claims continue to register accelerating improvement.

Positive labor market trends continue to defy both the fiscal drag and negative seasonal headwind which is nearing (what should be) peak negative impact into September. 

 

Non-seasonally adjusted claims printed another new cycle low, and lowest print since September 2007, at 277K.  The YoY rate of improvement accelerated 110bps sequentially to -11.2%  while the 4-wk rolling average of claims registered its fastest rate of improvement YTD at -10.6%.  Headline, seasonally adjusted claims declined 6K WoW to 331K with the 4-wk rolling average increasing a modest 0.75K. 

 

The relationship between NSA claims and 10Y yields since the market/growth inflection in November 2012 has been stark as #RatesRising has continued to reflect the underlying strength and positive growth implications embedded in a strengthening labor market. 

 

As Josh Steiner and our Financials team highlighted earlier today: 

 

The bottom line takeaway here is that the labor market is, in fact, stronger than most think and financials that are positively levered to ongoing improvement in labor conditions should continue to outperform. Moreover, given the growing shadow of uncertainty painting the recent tape, we'd look to this data series more than any other as a green light for buying weakness.

 

Meanwhile, the 1st revision to GDP was positive but largely optical as the aggregate upward revision stemmed principally from a positive revision to net exports.  Consumption was essentially unchanged while the modest, positive revision to investment and modest, negative revision to government expenditure was largely a wash.  A summary review of the preliminary 2Q13 estimate along with the impact of the 1st revision vs. the advanced estimate below.  

 

INITIAL CLAIMS:  LIKE A GLOVE - Claims vs 10Y 082913

 

Source: Hedgeye Financials 

INITIAL CLAIMS:  LIKE A GLOVE - JS 1

 

INITIAL CLAIMS:  LIKE A GLOVE - JS 2

 

INITIAL CLAIMS:  LIKE A GLOVE - US GDP 2Q13P

 

INITIAL CLAIMS:  LIKE A GLOVE - USA   ALTERNATIVE SCENARIO

 

 

Christian B. Drake

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.

INITIAL CLAIMS: THE TREND IS YOUR FRIEND

Takeaway: The number of people filing initial jobless claims continues to drop at an accelerating rate year-over-year.

The Most Important Economic Data Series We Follow Remains Green

For many weeks now we've been highlighting the accelerating strength in the labor market. This week is no exception. NSA initial jobless claims were better YoY by 11.2% this week, compared with 10.1% and 10.9% in the prior two weeks. Meanwhile, the 4-wk rolling average NSA claims was lower YoY by 10.5%, and improvement from the prior week's 10.2%, and the second strongest rate of YoY improvement we've seen YTD. 

 

The bottom line takeaway here is that the labor market is, in fact, stronger than most think and financials that are positively levered to ongoing improvement in labor conditions should continue to outperform. Moreover, given the growing shadow of uncertainty painting the recent tape, we'd look to this data series more than any other as a green light for buying weakness. 

 

The Data

Prior to revision, initial jobless claims fell 5k to 331k from 336k WoW, as the prior week's number was revised up by 1k to 337k.

 

The headline (unrevised) number shows claims were lower by 6k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.75k WoW to 331.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.5% lower YoY, which is a sequential improvement versus the previous week's YoY change of -10.2%

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 1

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 2

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 3

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 4

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 5

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 6

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 7

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 8

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 9

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 10

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 11

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 12

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 13

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 19

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 14

 

Yield Spreads

The 2-10 spread fell -14 basis points WoW to 238 bps. 3Q13TD, the 2-10 spread is averaging 231 bps, which is higher by 60 bps relative to 2Q13.

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 15

 

INITIAL CLAIMS: THE TREND IS YOUR FRIEND - 16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013

Takeaway: Bond fund outflows posted their 3rd worst week of '13 and an accelerating week-to-week redemption in the most recent ICI mutual fund survey

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

Equity Mutual Fund inflow slowed to $1.3 billion for the week ending August 21st, essentially flat from the $1.4 billion inflow the week prior but remained positive

 

Fixed Income Mutual Fund outflows picked up substantially with an out-sized $11.1 billion withdrawal by investors, a much larger draw-down than just the $3.9 billion outflow from last week

 

Both Equity and Fixed Income ETF money flow was negative for the week ending August 21st with a substantial $12.9 billion coming out of passive Equity ETFs and $2.3 billion coming out of passive Bond exchange traded funds 

 

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 11

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 12

 

For the week ending August 21st, the Investment Company Institute reported softening equity mutual fund flow trends, albeit positive flow trends, and accelerating week-over-week declines in fixed income mutual funds. Total equity fund flow totaled a $1.3 billion inflow which broke out to a $1.7 billion inflow into international equity products and a $387 million outflow in domestic stock funds. These trends essentially matched the week prior's combined inflow for domestic and international equity flows of $1.4 billion. Despite this deceleration in stock fund flows, the year-to-date weekly average for 2013 now sits at a $2.7 billion inflow for total equity products, a substantial improvement from the $3.0 billion outflow averaged per week in 2012.

 

On the fixed income side, outflow trends worsened during the week with the aggregate of taxable and tax-free bond funds combining to lose $11.1 billion in fund flow, the third biggest weekly draw down in 2013 in what now has become the biggest bond withdrawal in the history of the ICI data. This week's outflow was 3rd worst of the year lagging behind only the redemption in week ending June 26th of $28.2 billion and the week of June 12th where $13.4 billion was pulled out of fixed income funds. The taxable bond category specifically shed $7.3 billion in the most recent period versus the $1.8 billion loss last week. Tax-free or municipal bonds continued their sharp outflow trends losing another $3.7 billion in the week ending August 21st, a drastic acceleration from the $2.0 billion lost last week. Franklin Resources (BEN) continues to have the most exposure in our coverage group to declining Municipal bond trends with over 10% of its assets-under-management in the tax-free category. The 2013 weekly average for fixed income fund flow has now drastically declined from 2012, now averaging just a $128 million inflow this year, a far cry from the $5.8 billion weekly inflow averaged last year.

 

Hybrid funds, or products that combine both fixed income and equity allocation, continue to be the most stable category bringing in another $1.1 billion in the most recent weekly period. The year-to-date weekly average inflow for hybrid products is now $1.7 billion for '13, almost a 100% increase from 2012's $911 million weekly average.

 

 

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 2

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 3

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 4

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 5

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 6

 

 

Passive Products - Worst Equity ETF Outflow for 2013:

 

 

Both categories of exchange traded funds experienced redemptions by investors for the week ending August 21st. Equity ETFs lost a substantial $12.9 billion, the biggest equity ETF outflow since last summer and only the 9th negative week in the 34 weeks of 2013. Despite this week's outflow, 2013 weekly average equity ETF trends are averaging a $3.1 billion weekly inflow, an improvement from last year's $2.2 billion weekly average.

 

Bond ETFs also had tough trends in the most recent weekly period losing $2.3 billion in fund flow. This outflow was a vast acceleration from last week's small $209 million withdrawal and has now forced the 2013 weekly average to just a $320 million inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow from 2012.


 

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 7

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 8

 

 

HEDGEYE Asset Management Thought of the Week - Past is Prologue:

 

The setup for a rotation from bond funds into equity funds is following the same pattern as the last "Great Rotation" from stocks and into bonds in 2008 and 2009. In 2008, with the ongoing destruction of equity capital within the Credit Crisis and numerous financial concerns being forced to merge to avoid bankruptcy, stock funds experienced substantial outflows of over $59 billion in '08. These redemptions started the "parking" of funds in money market funds which experienced an abnormally high inflow level of $594 billion. This started the slow reallocation into bonds with 2008 spurring a $38 billion inflow into fixed income funds. In 2009 however, the rotation was completely on with another $3 billion leaking out of stock funds and a massive $504 billion being pulled out of money funds for a re-allocation of $323 billion into bonds. Thus history has told us that the first allocation move by investors will be into money funds and then into the new preferred asset class.

 

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 9

 

The setup of this rotation is again playing out in 2013 with fund flow data from the week ending May 22nd (when the Fed first mention the possibility of reducing its quantitative easing program) through this week's recent data at the end of August, again showing preference for outflows in the most troubled asset class (in this cycle being bonds), the parking of funds into money funds, and then a slow rotation into the asset class with the highest return potential (stocks in this cycle). This 12 week stanza of information has shown a $99 billion outflow in fixed income (now the largest bond withdrawal in history), a $34 billion inflow into money funds, and an $21 billion infusion into all equity funds (both domestic and international categories). With the disproportionate risks we see in the bond market currently, we estimate that this fund flow action will be the boiler plate for the rest of '13 and into 2014.

 

ICI Fund Flow Survey - Third Worst Week for Bond Outflows in 2013 - ICI chart 10 redo 

 

 

Jonathan Casteleyn, CFA, CMT

 

 

Joshua Steiner, CFA



Moody Markets

This note was originally published at 8am on August 15, 2013 for Hedgeye subscribers.

“How far is it wise to respond to a mood?”

-Frank Oppenheimer

 

Since yesterday’s Early Look focused on asking ourselves baseline risk management questions, I’ll roll with a good one that particle physicist Frank Oppenheimer asked his older brother in the 1930s. Here’s how Robert Oppenheimer answered it:

 

“… my own conviction is that one should use moods, but not be greatly deflected by them; thus one should try to use the gay times to do those things one wants to do that require gaiety, and the sober moods for the work one wants, and the low moods for giving oneself hell.” (American Prometheus, pg 95)

 

I’m a moody guy. So that answer spoke to me. Sober every morning, working. Giving myself hell about all my market mistakes come the afternoon. Sounds about right.

 

Back to the Global Macro Grind

 

Markets are moody too. They rarely cooperate with all of your positions. And they don’t care whatsoever about your views. Tough relationship we have with this Mr. Market, I know. That’s why I am lobbying the Fed to call her Mrs.

 

Early last week I polled you asking whether you thought the latest #EOW (end of the world) correction in US stocks would be on the order of 1, 2, or 5%. Since only one client answered 1%, I figured the probability of that being the correct answer was going up.

 

If you answered 5%, please don’t go all caps or moody on me. Take a breath. It’s just an opinion. And we all have one or we wouldn’t be playing this game. Currently the correction (from the all-time closing high of 1709 in the SP500) is -1.4%.

 

Now what? Well, let’s redo the poll with some forward looking information:

  1. Immediate-term TRADE support is 1680 = -1.7% from the all-time high
  2. Intermediate-term TREND support is 1637 = -4.2% from the all-time high
  3. Immediate-term risk range for US Equity Volatility (VIX) = 11.62-13.71

So, what do you think?

 

A)     1% correction (i.e. the market closes up today and yesterday was it)

B)      2% correction (somewhere between today and early next week, that’s it)

C)      4% correction (re-testing the TREND line, which we haven’t done since late June)

 

I’m going with B again.

 

If the market closes up on the day today, that will make me and everyone else (other than anonymous client Mr. X) who answered the poll last week wrong. If that happens, we can all just give ourselves hell.

 

What would have been really hellish in 2013 is missing this call on US employment #GrowthAccelerating. Again, we don’t care about the line-items in the BLS data; we only care about the slope of the line in the only leading indicator we can find for the bond market: NSA (non-seasonally adjusted) rolling US jobless claims. Most of the monthly payroll data is statistically useless.

 

We’ll get that weekly US Jobless Claims data point this morning – and if there’s one data point that matters to both the long-end of the US Treasury curve (and the US stock market), that is it. So let’s put this morning’s number in the context of recent history:

  1. Last week’s NSA claims number came in -10.5% year-over-year (slight improvement vs the previous week)
  2. The average for the last 12 weeks is claims falling -8.8% year-over-year
  3. Giving exception to a single anomalous data point 3 weeks ago, avg y/y improvement over 12 weeks = -9.7%

Yes, that’s a lot better than your parroting partisan pundit would lead you to believe. It’s also our definition of not only what matters to the employment vs Fed story, but what Mr. Market trades on – the 10yr US Treasury Yield fits NSA rolling claims like a glove.

 

Oh, and there’s seasonal headwinds in this jobless claims series that become tailwinds in September (that can run through February). Most (other than Mr. Bond and Stock Market) don’t expect to see the jobs picture improve, so it probably will.

 

One other way to measure the moodiness of it all is the weekly II Bull/Bear Spread:

  1. Last week, Bulls dropped from 51.6 to 47.4%
  2. Last week, Bears rose from 18.5 to 20.6%
  3. Last week, Bull/Bear Spread re-tested its most bearish level since Q2 at 2680 basis points wide

Yep – everyone says everyone is bullish. But they aren’t. Less than 50% are bullish. That’s really bearish. And the last time we saw a 2600bps handle on the Bull/Bear spread was in the 1st week of July. The SP500 proceeded to move from 1631 (our new TREND support) to 1709 within a month.

 

So, if you are all beared up (on stocks) this morning, just remember that bullish gaiety can quickly become a mid to late month-end move. The profitable bearish mood is in bonds. We’ll see if this morning’s jobless claims print reiterates that. September is coming.

 

UST 10yr 2.64-2.75%

SPX 1682-1712

VIX 11.62-13.71

USD 80.94-82.02

Yen 97.37-99.45

Brent 108.11-111.49

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Moody Markets - Claims 080813

 

Moody Markets - 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 80.30%
  • SHORT SIGNALS 78.51%
next