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INITIAL CLAIMS: TOUGH TO READ

Takeaway: Our labor market compass is currently impaired due to multiple distortions in our preferred labor market data series.

INITIAL CLAIMS: TOUGH TO READ - tyu7

Tea Leaves Tough To Read At the Moment

The initial jobless claims data this morning was good from a reported standpoint. Normally, we like to see through the reported seasonally adjusted (SA) numbers by looking at the year-over-year (Y/Y) trend in non seasonally adjusted (NSA) claims. Unfortunately, the distortions caused by Hurricane Sandy last year are reducing our precision in doing so.

 

Our best estimate is that the Y/Y trend is down -7.7%, which is a modest deceleration from our estimate of -8.9% improvement in the prior week, but still in line with the longer-term trend of accelerating improvement. The SA data is likely the more informative measure here, in spite of the known distortions. The data showed a significant week-over-week improvement, but here again that number was likely clouded by the Veteran's Day holiday last week, which has distorted the data series in the past.

 

Regrettably, it's hard to say with any good certainty whether the labor market inflected positively or negatively last week, though the SA numbers and our interpolated (Sandy-adjusted) NSA numbers suggest the trend of improvement that's been in place largely remained in place. The Sandy distortion should persist for another 2-3 weeks.

The Nuts & Bolts

Prior to revision, initial jobless claims fell 16,000 to 323,000 from 339K WoW, as the prior week's number was revised up by 5K to 344K.

 

The headline (unrevised) number shows claims were lower by 21k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.75k WoW to 338.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -15.3% lower YoY, which is a sequential improvement versus the previous week's YoY change of -12.9%

 

INITIAL CLAIMS: TOUGH TO READ - stein1

 

INITIAL CLAIMS: TOUGH TO READ - stein2

 

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Housing Watt(age)

Takeaway: Mel Watt is bullish for housing, big banks and mortgage insurers.

(Editor's note: Hedgeye Financials Sector Head Josh Steiner responds below to some big news out of Washington.)

 

Housing Watt(age) - und55

Senator Harry Reid (D-NV) just threw down the gauntlet and went with the nuclear option. He’s rewritten the rules to prevent filibustering on all Presidential nominees aside from Supreme Court Justices.

 

The biggest takeaway here is the potential for a Lazarus-like rise of Mel Watt to potentially head FHFA (the overseer of Fannie and Freddie.) As a reminder, if Watt gets confirmed, which it now looks like he can/will, it would be very good for the following stocks: MTG, RDN, BAC, WFC, C. It would also be very good for housing as an asset class.

 

Here’s an excerpt in a research note we wrote back when Watt’s candidacy first surfaced.

Another Positive Catalyst - Big Banks, Mortgage Insurers

It's being reported this morning that President Obama is likely to nominate Congressman Mel Watt (D-NC) to be the new head of FHFA, replacing current director Ed DeMarco. While it remains to be seen whether Watt can be confirmed, we've been clear that DeMarco's eventual replacement will be a positive catalyst for housing, big banks and mortgage insurers. DeMarco has opposed underwater principal forgiveness for GSE borrowers, a stance we agree with as taxpayers.

 

That said, it's clear that if a new director were to green light underwater principal forgiveness it would represent a transfer payment from taxpayers to large banks and mortgage insurers. Large banks have large second lien portfolios that would be in far better shape if the default probabilities on the first liens were improved. Based on the administration's history, we think it's unlikely that the banks would be compelled to offer comparable forgiveness on the seconds. The same logic is even more applicable to the mortgage insurers. Reducing first lien principal is a huge boon for MIs with legacy GSE exposures. MTG & RDN's frequency and severity profiles would improve significantly if Watt is confirmed. 

 

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INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS

Takeaway: Our labor market compass is currently impaired due to multiple distortions in our preferred labor market data series.

The Tea Leaves Are Tough To Read At the Moment

The initial jobless claims data this morning was good from a reported standpoint. Normally we like to see through the reported SA numbers by looking at the Y/Y trend in NSA claims, but unfortunately the distortions caused by Hurricane Sandy last year are reducing our precision in doing so. Our best estimate is that the Y/Y trend is down -7.7%, which is a modest deceleration from our estimate of -8.9% improvement in the prior week, but still in line with the longer-term trend of accelerating improvement. The SA data is likely the more informative measure here, in spite of the known distortions. The data showed a significant W/W improvement, but here again that number was likely clouded by the Veteran's Day holiday last week, which has distorted the data series in the past. Regrettably, it's hard to say with any good certainty whether the labor market inflected positively or negatively last week, though the SA numbers and our interpolated (Sandy-adjusted) NSA numbers suggest the trend of improvement that's been in place largely remained in place. The Sandy distortion should persist for another 2-3 weeks.

 

The Nuts & Bolts

Prior to revision, initial jobless claims fell 16k to 323k from 339k WoW, as the prior week's number was revised up by 5k to 344k.

 

The headline (unrevised) number shows claims were lower by 21k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.75k WoW to 338.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -15.3% lower YoY, which is a sequential improvement versus the previous week's YoY change of -12.9%

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 1

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 2

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 3

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 4

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 5

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 6

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 7

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 8

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 9

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 10

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 11

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 12

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 13

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 19

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 14

 

Yield Spreads

The 2-10 spread rose 13 basis points WoW to 252 bps. 4Q13TD, the 2-10 spread is averaging 232 bps, which is lower by 2 bps relative to 3Q13.

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 15

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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 80.64%
  • SHORT SIGNALS 78.57%

PODCAST: McCullough: live from las vegas

Hedgeye CEO Keith McCullough weighs in from Caesars Palace with his latest take on the market, Fed and economy before speaking at the Traders Expo later this morning. According to Keith, it's Buy-The-Damn-Bubble (for now).

 


Monetary Miasma

Client Talking Points

JAPAN

So here's what we're looking at this morning: #TaperTalk equals Up Dollar equals Down Yen equals Nikkei Up +1.9% to +50.2% year-to-date. Cool, no? That’s exactly the global macro environment we had for nine months until Ben Bernanke decided not to taper.

UK

A strong currency is “bad for exports” right? Wrong! UK Factory Orders hit an 18 YEAR-HIGH this morning with #StrongPound. A little austerity and no QE goes a long way towards the purchasing power of the people and producer margins.

UST 10YR

The 10-year Treasury yield tested the top-end of my immediate-term 2.63-2.81% risk range on #TaperTalk and backed off. A) I don’t think the Fed is going to taper in December and B) I think this will foster a 2.3-2.9% type 10-year risk range for the intermediate-term. Confusion on tapering should eventually breed contempt (volatility) in both stocks and bonds. Stay tuned.

Asset Allocation

CASH 50% US EQUITIES 8%
INTL EQUITIES 8% COMMODITIES 6%
FIXED INCOME 6% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

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.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Buy-the-damn-bubble (for now) @KeithMcCullough

QUOTE OF THE DAY

"I love everything about investing except maybe the fact that I’m actually in the investment industry." -Christian Drake (Hedgeye analyst)

STAT OF THE DAY

Got Pounds? A measure of new orders at U.K. factories rose to the highest in almost two decades in November and expectations for the next three months improved, the Confederation of British Industry said. The CBI’s manufacturing gauge climbed to 11 from minus 4 in October, the highest since March 1995. 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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