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Budget Deal: Pigs Fly In Washington?

Takeaway: There is some (potentially) positive and negative news for the ailing U.S. Dollar as flying pigs descend upon Washington.

This note was originally published December 11, 2013 at 11:30 in Macro

Budget Deal: Pigs Fly In Washington? - pig

 

For the 99% of Americans who fail to find the vagaries of federal budget accounting and the interminable tragicomedy that is bipartisan budget negotiations scintillating, the following link provides a summary review of sequestration and the key provisions/budget impacts  >>    SEQUESTRATION 2014: WHAT'S THE IMPACT AGAIN?

 

Below we provide a quick update on how the emergent accord between Representative Ryan and Senator Murray impacts the numbers.

SEQUESTER RELIEF  

Late yesterday we got the latest (prospective) chapter in the budget debate and ongoing evolution of the Budget Control Act – the 2011 legislation which defined discretionary spending levels over the balance of the decade.   The crux of the budget deal – ‘sequester relief’ via higher spending - is highlighted in the following table. 

 

Summarily, the agreement proposes to raise spending levels by a combined $63B over FY2014 and FY2015.  It would also provide for a net deficit reduction of $22.5B over ten years, stemming primarily from higher user fees (airlines), increased pension and benefit expenses for federal workers, and a 2Y extension of Medicare payment cuts.  

 

Budget Deal: Pigs Fly In Washington? - drakepiece1

Dollar Bearish (kinda), Consumption Bullish (maybe):

In isolation, a budget agreement calling for higher spending is dollar bearish on the margin.  However, to the extent that increased fiscal policy clarity pulls forward the tapering timeline, a multi-year accord could be viewed as a positive for the currency. 

 

On balance, and if the Fed is, indeed, data dependent, the investment conclusion is somewhat equivocal.  We’ll continue to let the market act as arbiter, using price as our signal.  Investors have been net sellers of dollars for 5 consecutive weeks and, as it stands currently, the dollar remains broken on both TREND and TAIL durations with the next level of TRADE support at $79.67 on the DXY.   

 

In the intermediate term, higher federal spending offers some potential upside to consumption growth.  As we’ve highlighted (HERE), government sourced income has been a discrete drag on aggregate personal and disposable income growth as sequestration/furloughs and ongoing federal employment loss have driven negative income growth for ~17% of the national workforce. 

 

If the decline in federal employment bases and government salary and wage growth goes positive (against easy compares) in 2014, consumption growth could see some moderate upside. 

 

Budget Deal: Pigs Fly In Washington? - Government Drag

 

Christian B. Drake

Associate

 

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Budget Deal: Pigs Fly In Washington? - cartoon

 


"SEQUESTER RELIEF": REVIEWING THE SETUP (CORRECTED)

For the 99% who fail to find the vagaries of federal budget accounting and the interminable tragicomedy that is bipartisan budget negotiations scintillating, the following link provides a summary review of sequestration and the key provisions/budget impacts  >>    SEQUESTRATION 2014: WHAT'S THE IMPACT AGAIN?

 

 

Below we provide a quick update on how the emergent accord between Representative Ryan and Senator Murray impacts the numbers.

 

 

SEQUESTER RELIEF  

Late yesterday we got the latest (prospective) chapter in the budget debate and ongoing evolution of the Budget Control Act – the 2011 legislation which defined discretionary spending levels over the balance of the decade.   The crux of the budget deal – ‘sequester relief’ via higher spending - is highlighted in the following table. 

 

Summarily, the agreement proposes to raise spending levels by a combined $63B over FY2014 and FY2015.  It would also provide for a net deficit reduction of $22.5B over ten years, stemming primarily from higher user fee’s (airlines), increased pension and benefit expenses for federal workers, and a 2Y extension of Medicare payment cuts.  

 

"SEQUESTER RELIEF": REVIEWING THE SETUP  (CORRECTED) - Sequestration Budget Deal 3

 

Dollar Bearish (kinda), Consumption Bullish (maybe):

In isolation, a budget agreement calling for higher  spending is dollar bearish on the margin.  However, to the extent that increased fiscal policy clarity pulls forward the tapering timeline, a multi-year accord could be viewed as a positive for the currency. 

 

On balance, and if the Fed is, indeed, data dependent, the investment conclusion is somewhat equivocal.  We’ll continue to let the market act as arbiter, using price as our signal.  Investors have been net sellers of dollars for 5 consecutive weeks and, as it stands currently, the dollar remains broken on both TREND and TAIL durations with the next level of TRADE support at $79.67 on the DXY.   

 

In the intermediate term, higher federal spending offers some potential upside to consumption growth.  As we’ve highlighted (HERE), government sourced income has been a discrete drag on aggregate personal and disposable income growth as sequestration/furloughs and ongoing federal employment loss have driven negative income growth for ~17% of the national workforce. 

 

If the decline in federal employment bases and government salary and wage growth goes positive (against easy compares) in 2014, consumption growth could see some moderate upside. 

 

"SEQUESTER RELIEF": REVIEWING THE SETUP  (CORRECTED) - Government Drag

 

Christian B. Drake

Associate

 


[VIDEO] Keith's Macro Notebook 12/11: Asia, Inflation, Gold


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What's New Today in Retail (12/11)

Takeaway: DTLR scraps IPO plans, Reebok opens FitHub in Paris, RSH refinances

EVENTS TO WATCH OVER THE NEXT 24 HOURS

 

COST - Earnings Call: Wednesday 12/11 11:00 am

LULU - Earnings Call: Thursday 12/12 9:00 am

MW - Earnings Call: Thursday 12/12 9:00 am

 

ECONOMIC DATA

 

China’s Retail Sales Accelerate as Factory Output Slows

(http://www.bloomberg.com/news/2013-12-10/china-industrial-production-slows-as-retail-sales-top-estimates.html)

 

  • "China’s retail sales unexpectedly accelerated in November while industrial output rose less than estimated, giving a mixed picture of growth as leaders gather in Beijing to set economic policies for the coming year."
  • "Factory production rose 10 percent from a year earlier, the National Bureau of Statistics said in Beijing yesterday, compared with analysts’ median projection of 10.1 percent in a Bloomberg survey. Retail sales advanced 13.7 percent"

 

COMPANY NEWS

 

HD - The Home Depot Updates Strategic Priorities; Confirms Fiscal Year 2013 Sales And Diluted Earnings Per Share Guidance; Provides Fiscal Year 2014 Financial Outlook And Updates 2015 Financial Targets

(http://phx.corporate-ir.net/phoenix.zhtml?c=63646&p=irol-newsArticle&ID=1883809&highlight=)

 

  • "The Company reaffirmed its sales and diluted earnings-per-share guidance for fiscal 2013. The Company expects sales to be up approximately 5.6 percent for the year and diluted earnings-per- share to be up approximately 24 percent to $3.72 for the year. Comparable store sales, on a 52-week like for like basis, are expected to be up approximately 7.0 percent for the year. The Company's fiscal 2013 sales and diluted earnings-per-share guidance is based on a 52-week year compared to fiscal 2012, a 53-week year."

 

DTLR - DTLR Scraps Plans for IPO 

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=9&id=49044)

 

  • "DTLR Holding, Inc. announced that due to a unspecified 'business development' the company has determined to not proceed with its planned initial public offering."
  • "The company declined to comment beyond its one-sentence statement."

 

ADS - Reebok Opens First Fithub in Paris 

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=8&id=49067)

 

  • "Like the Reebok flagship opened a year ago in New York on 5th Avenue, Reebok is opening its first concept store (Fithub) and CrossFit Box at 31 Avenue de l'Opera, its first Fithub in Paris. The combined store and gym measures 8,600 square feet."

 

JWN - Jeffrey Kalinsky Shifting Role at Nordstrom

(http://www.wwd.com/retail-news/people/jeffrey-kalinsky-shifting-role-at-nordstrom-7306769?module=hp-topstories)

 

  • "Jeffrey Kalinsky is taking a step back at Nordstrom Inc., where he has been executive vice president of designer merchandising for the last eight-and-a-half years."
  • "Kalinsky, who wants to flex his creative muscles, is planning to focus part of his time on projects outside Nordstrom. He’ll also continue to operate his two namesake stores, Jeffrey New York and Jeffrey in Atlanta, which Nordstrom bought in 2005, naming Kalinsky director of designer merchandising while he remained president and chief executive officer of Jeffrey Inc."

 

Moncler - Moncler Said Likely to Price IPO at Top of Range on High Demand

(http://www.businessweek.com/news/2013-12-10/moncler-said-likely-to-price-ipo-at-top-of-range-on-high-demand)

 

  • "Moncler...plans to price its initial public offering at 10.20 euros a share, the top of an indicated range, according to two people familiar with the transaction."
  • "The sale was fully covered on the first day of the offer, said the people, who asked not to be named because the details aren’t public. The order book closes today and is more than 20 times subscribed, one person said."

 

RSH - RadioShack Closes New Five-Year Financing Totaling $835 Million

(http://ir.radioshackcorporation.com/phoenix.zhtml?c=84525&p=irol-newsArticle&ID=1883753&highlight=)

 

  • "RadioShack Corporation announced today that it has completed a new financing totaling $835 million including a $585 million senior secured ABL credit facility led by GE Capital, Corporate Retail Finance and a $250 million secured term loan led by Salus Capital Partners, LLC.  This comprehensive new financing will be used to refinance existing debt and provide approximately $200 million of incremental liquidity, all of which will further strengthen the Company's balance sheet as it continues to move forward with its operational turnaround."
  • "The new $250 million secured term loan was led by Salus Capital. The terms of this loan include a five-year duration and a rate of LIBOR plus 11%. This term loan was drawn and funded at closing and is secured by a second lien on the assets securing the new ABL credit facility and a first lien on certain other assets of the Company."

 

INDUSTRY NEWS

 

Facebook Ranks as Top Platform in Social Media Survey

(http://www.wwd.com/media-news/digital/facebook-ranks-as-top-platform-in-social-media-survey-7305956)

 

  • "When it comes to product and service recommendations, Facebook scored highest as the most trusted platform, according to a new survey conducted by Social Media Link, an advocacy activation company.
  • The survey found that 68 percent said they trusted Facebook over blogs (63 percent); retail Web sites (63 percent); Pinterest (56 percent); YouTube (51 percent); Twitter (41 percent), and Google+ (41 percent)."
  • "According to the study, reviews by friends and family have the biggest impact (86 percent), followed by professionals (58 percent); Web site reviews (54 percent); acquaintances (42 percent); bloggers (39 percent), and celebrities (11 percent)."


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