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INITIAL CLAIMS & ISM: EN FUEGO

Conclusion:  The slope in bond yields continues to follow the slope of improvement in the labor market and broader domestic macro data in July/Aug.  Another YTD low in Jobless Claims, another multi-year high in ISM New Orders, and a return to positive labor productivity growth preface tomorrow’s jobs report.   

 

 

INITIAL CLAIMS

Non-seasonally adjusted Claims:  NSA claims registered another new cycle low, and lowest reading since September 2007,  in absolute terms this week at 269K. 

 

The YoY rate of change improved to -13.1% vs. 10.8% (revised) last week with the 4-week rolling average in YoY claims accelerating -80bps to -11.3% this week vs. -10.5% the week prior. 

 

In short, our favored read on the underlying strength in the labor market, continues to register accelerating improvement.     

 

Seasonally adjusted Claims:  Headline, seasonally adjusted initial jobless claims declined 8K WoW to 323K – on par with the lowest print of the year and lowest reading since January 2008.   The 4-week rolling average in claims declined -3K with the YoY and 4wk rolling YoY rates of improvement both accelerating sequentially.   

 

The slope of bond yields continues to follow the slope of improvement in the labor market and slow growth, yield chase assets (see utilities/staples in Sector Divergence Monitor below) continue to come under pressure alongside #RatesRising, an improving growth outlook, and the realities of monetary policy renormalization. 

 

We think the prevailing asset class and sector level performance dynamics (i.e slow growth lower vs high growth higher, Stocks Ups vs. Bonds/Gold Down) continue to extend themselves.

 

INITIAL CLAIMS & ISM: EN FUEGO - NSA Claims 090613

 

INITIAL CLAIMS & ISM: EN FUEGO - SA Claims 090613

 

INITIAL CLAIMS & ISM: EN FUEGO - 10Y vs NSA Claims

 

INITIAL CLAIMS & ISM: EN FUEGO - Subsector Divergence Monitor

 

ISM Non-Manufacturing:  The ISM services data followed yesterday’s manufacturing data higher with the composite index advancing to 58.6 in August from 56.0 in July.  The Business Activity, New Orders, Employment, Deliveries, and Backlog components all strengthened sequentially.   Notably, the best lead indicator within the componentry - New Orders - breached 60 to the upside, registering its strongest reading since February 2011.   

 

On a two month basis, the New Orders reading within both the Manufacturing and Non-Manufacturing Survey’s posted their best advances (outside of the onset of the recovery in mid-2009) since 2001 and 2003, respectively. 

 

On balance, manufacturing, which sat as the domestic macro deadbeat in the March-May period, is showing accelerating improvement with the ISM, PMI, and Fed Regional Survey data all strengthening over the July/Aug period.    

 

INITIAL CLAIMS & ISM: EN FUEGO - ISM Services Table

 

INITIAL CLAIMS & ISM: EN FUEGO - ISM Non mfg new Orders

 

INITIAL CLAIMS & ISM: EN FUEGO - New Orders 2M Change

 

Labor Productivity:  Meanwhile, the final labor productivity data for 2Q13 came in at +2.4% after a two quarter stretch in negative territory.  Nothing particularly investable here, but nice to see a return to positive growth >2%.  Longer-term, and in context of the Labor Market, with demographics and (potentially) other structural headwinds creating secular pressure on domestic labor supply, productivity gains will sit as an increasingly important driver of real output growth.

 

INITIAL CLAIMS & ISM: EN FUEGO - Labor Productivity

 

 

Christian B. Drake

Senior Analyst 


HEI vs. HEI/A: Taking the Win

Taking a Quick Win

 

We put out a note here suggesting a short HEI, long HEI/A pair.  At the time, the HEI premium was abnormally large and the extra votes for the common shares at Heico do not have much value for the average shareholder.  The HEI premium has dropped about 12% since our 8/27/13 note, which is an excellent annualized return for a well matched pair.  If readers have an interest in these kinds of trades, please ping us for background.  There is no shame in generating some alpha the easy way.

 

HEI vs. HEI/A:  Taking the Win - hei 3

 

 

 

 

 

Jay Van Sciver, CFA

Managing Director


HEDGEYE RISK MANAGEMENT
111 Whitney Avenue

New Haven, CT 06510


 


INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED

Takeaway: The labor market remains strong like bull. Maintain overweight exposure to credit-levered Financials.

Remarkably Consistent

We're beginning to feel like a broken record with our call on initial jobless claims, stating almost every week how the data is improving at an accelerating rate. This week's data again reflects that trend. Nevertheless, we urge investors to continue to care. Why? With the broader market, and the Financials sector alongside it, gripped in uncertainty over whether we're poised for a meaningful correction, we continue to regard the claims data as the strongest indicator supporting our ongoing bullish bias and buy-the-dip view. Regrettably for those waiting patiently, there hasn't really been much of a dip. 

 

The bottom line is that the labor market is humming along nicely at this point with rolling NSA claims down 11.2% Y/Y, the fastest rate of improvement since May, 2012. Additional anecdotal evidence continues to emerge that at least a portion of the broadening base of employment is a reflection of employers responding to Obamacare. The bottom line, however, is that the labor market tends to be very self-reinforcing. Baring a significant external shock, we see little reason to expect the current trajectory to deviate from its trend.

 

As we've stated previously, we continue to think that credit-levered financials remain the best plays amid an accelerating rate of improvement in employment. Two of our favorite ideas on this theme remain Capital One (COF) and Bank of America (BAC).

 

The Data

Prior to revision, initial jobless claims fell 8k to 323k from 331k WoW, as the prior week's number was revised up by 1k to 332k.

 

The headline (unrevised) number shows claims were lower by 9k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3k WoW to 328.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -11.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -10.4%

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 1

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 2

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 3

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 4

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 5

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 6

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 7

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 8

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 9

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 10

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 11

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 12

 

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INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 19

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 14

 

Yield Spreads

The 2-10 spread rose 7 basis points WoW to 243 bps. 3Q13TD, the 2-10 spread is averaging 231 bps, which is higher by 61 bps relative to 2Q13.

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 15

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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.

[Podcast] McCullough En Fuego

Hedgeye Risk Management CEO Keith McCullough was kicking a-- and taking names on this morning's Macro Conference Call with clients. Keith dished on #StrongDollar, stocks, interest rates and #GrowthAccelerating. No one was spared. Pretty impressive for a puck-head from Canada.

 


MPEL: Removing from Investing Ideas

We are removing Melco Crown Entertainment (MPEL), a casino operator in Macau, from our Investing Ideas list today.  

 

MPEL was added to Investing Ideas on March 18th. It closed that day's trading at $20.33. Yesterday, MPEL closed at $28.11.

 

Hedgeye Gaming, Lodging and Leisure Sector Head Todd Jordan writes, “After a long steep climb, the MPEL engine may be slowing down.”

 

Jordan writes, “We're still positive on Macau, so it’s difficult to be negative on MPEL.  However, MPEL’s recent share losses in the (higher-end) Junket segment are a little disconcerting and could continue.  Moreover, MPEL’s mass (segment) share could be at risk as Sands Cotai Central begins its push into premium mass (segment) next year.”


Rates Rising: Rinse & Repeat

Client Talking Points

USD

Don't look now but #StrongDollar is clocking a 6-week high this morning. The greenback is up for the 4th straight week. It's starting to look a lot like late June on that side of the Macro correlation scorecard. The trend correlations remain positive at +0.6 between the S&P 500 and US Dollar. Meanwhile, the last week or so of US economic data clearly support this move.

UST 2YR

As you may have already surmised, I spend more time worrying about the long-end of the yield curve (because Ben Bernanke marks the short end to model), but that hasn't stopped the 2-year yield from putting on a monster rip show in the last few weeks to 0.48%. What exactly constitutes a big rip? How about a 60% surge in a month! Kaboom. Look, lots of (most?) people don’t model entropy risk on a percentage basis. We do here at Hedgeye. It works. Got #RatesRising yet?

GOLD

We have no position in anything Gold right now. But with #StrongDollar and #RatesRising, I certainly don’t wake up in the morning thinking about anything other than where can I re-short it. When an asset’s price is in full-on crash mode, we aren’t smart enough to catch falling knives. The trend resistance for Gold is firmly intact at $1483. Tail risk resistance is well above that at $1661. Don't catch a falling knife.

Asset Allocation

CASH 28% US EQUITIES 25%
INTL EQUITIES 23% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

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

UST 10yr 2.92% taking another run at the YTD highs for the right reasons #RatesRIsing

@KeithMcCullough

QUOTE OF THE DAY

"I have to believe that when things are bad I can change them." -James "Cinderella Man" Braddock

STAT OF THE DAY

Treasury prices sank this morning, sending the 10-year Treasury note yield to its highest level since July 2011 as it continues its steady march toward 3%. The 10-year note was up 5 basis points at 2.951% while the 5-year note yield was up 7 basis points at 1.819% and the 30-year bond yield was up 3.5 basis points to 3.835%.


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