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We're Not Getting Younger

This note was originally published at 8am on December 13, 2013 for Hedgeye subscribers.

“Everything was of interest to him.”

-Doris Kearns Goodwin

 

That’s what the French Ambassador to the US said about a young man by the name of Theodore Roosevelt as he entered the public arena of American life. Everything was interesting to Teddy, “people of today, people of yesterday, animals, minerals, stones, stars, the past, the future” (The Bully Pulpit, pg 67).

 

The man was constantly learning.

 

When I read that passage, I thought of my kids. At home, I am in constant awe of the evolution and growth of free minds. At work, I am increasingly frustrated to see how stagnant and mediocre the collective political mind of said American leadership has become. #OldMedia, especially in markets and economics, perpetuates that. They don’t want to think. They just want government access.

 

Dad, old people are cool. I just don’t want to be old. I want to get younger so that I can go back and not repeat all of the mistakes I have made in my life. That’s not a me versus them thing. It’s a me versus me thing. Two of the best Presidents in US history were the two youngest – Teddy Roosevelt and John F. Kennedy. Both believed that a #StrongDollar = Strong America.

 

Back to the Global Macro Grind

 

The global central planning debate about devaluing the hard earned currency of The People in exchange for political policies that don’t work rages on. Sort of. Our Keynesian overlords sort of read what we write, but never try what we want them to do.

 

A central banker who I used to respect (Glenn Stevens at the Reserve Bank of Australia) is trying the “weak currency is good for exports” thing. The only thing Australia is exporting now are new lows in both its currency and stock market. Nice job, Glenn.

 

So what will it be here in the USA? A weaker or stronger Dollar? Taper or no taper?

 

Not to be confused with the fantastic 9 month move we had during #StrongDollar, #RatesRising period of JAN-SEP 2013 (which delivered a business cycle (with inventories!) high of +3.6% GDP), the last 6 weeks have developed the following Correlation Risk:

  1. TAPER-ON = US Dollar UP … Stocks, Gold, and Bonds DOWN
  2. TAPER-OFF = US Dollar DOWN … Stocks, Gold, and Bonds UP

This is a very short-term addiction thing. People who have been begging for the Fed not to taper (perma Gold, Bond, and MLP bulls) do not want the chickens to come home to roost alongside economic gravity (#RatesRising), ever.

 

Maybe that’s why some Americans were so enamored with the whole Breaking Bad thing. Short-term meth pops, whether into your blood-stream or bank account, feel so goooood. Right?

 

Right, right.

 

Irrespective of Teddy, JFK, and a man named Mucker disagreeing with the Dollar Devaluation thing, we need to proactively prepare for what will happen; not what we want to happen.

 

Which brings me to next week’s Fed decision. To taper or not to taper, remains the question…

  1. I don’t think Bernanke has the spine to taper in December
  2. If he doesn’t, the US stock market will probably rip back to all-time highs
  3. If he does, the long-term outlook for American life will get a lot better, faster

I realize you can count on one-hand how many people who rant and write as often as I do who agree with this long-term view of US purchasing power and economic prosperity. But that’s why it was the view that worked for most of 2013. #StrongDollar + #RatesRising gave you the best US growth investor’s market since the mid-1990s. That ends with Down Dollar.

 

And who (in popular political life) really wants to see another 1983-89 (Reagan) or 1993-1999 (Clinton) #StrongDollar #RatesRising and sustained economic growth period? More importantly, who actually understands it?

 

Romney didn’t.

 

I remember emailing back and forth with his son during the campaign about how all Mitt had to do was keep saying #STRONGDOLLAR and tag Obama (and Bush) with the weakest purchasing power (weakest US Dollar) and highest cost of living (highest food and gas prices) in US history.

 

Nope. Didn’t want to do that. They marched it up the old pole of Keynesian economists who advised Bush (like Glenn Hubbard), and that new idea ended right then and there.

 

Is that the America you want? While I may want to, I will never get younger again. Neither will your country. But you might get one hell of a buy-the-damn-#DollarDown stock market pop next week if Bernanke Burns The Buck again. Don’t confuse that with economic progress.

 

Our immediate-term risk ranges are now:

 

UST 10yr Yield 2.77-2.91%

SPX 1771-1794

VIX 14.51-15.92

USD 79.57-80.48

Brent Oil 108.01-110.63

Gold 1206-1260

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

We're Not Getting Younger - Chart of the Day

 

We're Not Getting Younger - Virtual Portfolio


INITIAL CLAIMS & CONFIDENCE: BACK ON TRACK

The seasonal, peri-holiday noise will remain in the initial claims data through the end of the year, but after last week’s “speed bump”, this morning’s release, which showed non-seasonally adjusted claims improving 9% YoY,  reflected a return to the positive TREND rate of improvement that has characterized much of 2013.   

 

Confidence, meanwhile, continues to recover from the government shutdown catalyzed rollover in Oct/Nov.   Bloomberg’s weekly read on consumer comfort improved +2.0 to -27.4 week-over-week and continues to track back towards the August highs.

 

More broadly, after treading water for nearly 5 years, confidence readings across all the major survey’s have seen a legitimate breakout in 2013 alongside accelerating economic growth and ongoing improvements in the housing and labor markets. 

 

Historically, Confidence has been a solid coincident-to-leading indicator for broader economic activity.  For example, over the last 20 years, the correlations between Consumer Confidence and Velocity of M2 and New Orders for Consumer Goods are >0.82.  Not a surprise for a consumer driven domestic economy, but worth a re-highlight as confidence breaks back towards pre-recession levels. 

 

Below is the breakdown of this morning's claims data from the Hedgeye Financials team.  If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

- HEDGEYE MACRO

 

 INITIAL CLAIMS & CONFIDENCE: BACK ON TRACK - Bberg confidence 122613

 

 INITIAL CLAIMS & CONFIDENCE: BACK ON TRACK - Confidence vs M2   New Orders 

 

----------------------------------------------------------------------------------------------------------------------

 

INITIAL CLAIMS:  2013 in Review

With all but one week of 2013 now in the books the labor data is showing a non-seasonally adjusted year-over-year improvement of 8.2% on a full-year basis. For comparison, 2012 was better by 8.1% versus 2011. This morning's data point showed a 9.0% improvement y/y while the rolling 4-wk average is better by 10.2%. By most accounts the labor data remains strong and shows ongoing improvement. Last week we had flagged a speed bump in the data, but this morning's numbers suggest that a speed bump may have been all that it was.

 

We continue to expect that the strengthening labor market data will exert ongoing upward pressure on long-term rates. This morning the 10-year treasury yield is at 2.99%, just one basis point away from its September 5 high. We've demonstrated how bank stocks are very positively correlated to 10-year yields while homebuilders are very negatively correlated. For more on that, see our publication from 11/22/13 entitled #Rates-Rising: A Current Look at Rate Sensitivity Across Financials.

 

The Data

Prior to revision, initial jobless claims fell 41k to 338k from 379k WoW, as the prior week's number was revised up by 1k to 380k.

 

The headline (unrevised) number shows claims were lower by 42k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 4.25k WoW to 346.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.7%

 

 INITIAL CLAIMS & CONFIDENCE: BACK ON TRACK - JS 1

 

 INITIAL CLAIMS & CONFIDENCE: BACK ON TRACK - JS 2

 

 INITIAL CLAIMS & CONFIDENCE: BACK ON TRACK - JS 3

 

 INITIAL CLAIMS & CONFIDENCE: BACK ON TRACK - JS 4

 

 INITIAL CLAIMS & CONFIDENCE: BACK ON TRACK - JS 5 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


INITIAL CLAIMS: CHUGGING ALONG

Takeaway: Last week's labor market soft patch proved short-lived as this week's data has resumed its pace of steady improvement.

Editor's note: This is an excerpt from Hedgeye Risk Management research. For more information and to learn how to join the Hedgeye Revolution click here.

 

INITIAL CLAIMS: CHUGGING ALONG - jobs3

2013 in Review

With all but one week of 2013 now in the books, the labor data is showing a non-seasonally adjusted year-over-year improvement of 8.2% on a full-year basis. For comparison, 2012 was better by 8.1% versus 2011. This morning's data point showed a 9.0% improvement y/y while the rolling 4-wk average is better by 10.2%. By most accounts the labor data remains strong and shows ongoing improvement. Last week we had flagged a speed bump in the data, but this morning's numbers suggest that a speed bump may have been all that it was.

 

We continue to expect that the strengthening labor market data will exert ongoing upward pressure on long-term rates. This morning the 10-year treasury yield is at 2.99%, just one basis point away from its September 5 high. We've demonstrated how bank stocks are very positively correlated to 10-year yields while homebuilders are very negatively correlated. For more on that, see our publication from 11/22/13 entitled #Rates-Rising: A Current Look at Rate Sensitivity Across Financials. (Ping sales@hedgeye.com for access).

The Data

Prior to revision, initial jobless claims fell 41k to 338k from 379k week-over-week (WoW), as the prior week's number was revised up by 1k to 380k.

 

The headline (unrevised) number shows claims were lower by 42k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 4.25k WoW to 346.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.7%.

 

INITIAL CLAIMS: CHUGGING ALONG - stein2

 

INITIAL CLAIMS: CHUGGING ALONG - stein1


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Daily Trading Ranges, Unlocked

This note was originally published December 26, 2013 at 08:07 in Daily Trading Ranges

 

Editor's note: This is a complimentary look at Hedgeye's Daily Trading Ranges product. For more information and to subscribe click here.

 

Daily Trading Ranges, Unlocked - dtr1

BULLISH TRENDS

Daily Trading Ranges, Unlocked - 2A

Daily Trading Ranges, Unlocked - 3A

Daily Trading Ranges, Unlocked - 4A

Daily Trading Ranges, Unlocked - 5A

Daily Trading Ranges, Unlocked - 6A

Daily Trading Ranges, Unlocked - 7A

Daily Trading Ranges, Unlocked - Slide8

Daily Trading Ranges, Unlocked - Slide9

Daily Trading Ranges, Unlocked - Slide10

 

BEARISH TRENDS

Daily Trading Ranges, Unlocked - Slide11
Daily Trading Ranges, Unlocked - Slide12

 


All Time (Is a Long Time)

Client Talking Points

U.S.

There were some epic shorts in 2013 (Gold and Bonds) - just not the ones consensus pundits called for. If only the 2013 perma bears could figure out what happened! Bottom line is you were either long growth (US stocks) and short fear (Gold, Bonds, VIX) or you were not. Meanwhile, the S&P 500 is notching a new all-time high today at 1838. As we like to say here at Hedgeye, all-time is a long time.

SPX

We're going to continue to hammer on the importance of getting style factors and sector allocations correct in 2014. Simply avoiding the most underperforming sectors would have been a boon for anyone’s portfolio in 2013. Of the 9 major U.S. equity stock market sectors, the outperformance between the top performing sector of Consumer Staples and the worst performing Sector of Utilities was more than 2,000 basis points! Simply getting the allocation to those two sectors correctly weighted, would have made any equity manager’s year.

Asset Allocation

CASH 45% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 25%

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

TREASURIES: Bond Yields continue to rip Bond Bulls a new one #RatesRising @KeithMcCullough

QUOTE OF THE DAY

"Playing it safe is the riskiest choice we can ever make."

-Sarah Ban Breathnach

STAT OF THE DAY

The top five performing global equity markets for the year were as follows:

  • Venezuela +478%
  • Dubai +102%
  • Argentina +88%
  • Abu Dhabi +58%
  • Japan +56%


INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014

Takeaway: Last week's labor market soft patch proved short-lived as this week's data has resumed its pace of steady improvement.

2013 in Review

With all but one week of 2013 now in the books the labor data is showing a non-seasonally adjusted year-over-year improvement of 8.2% on a full-year basis. For comparison, 2012 was better by 8.1% versus 2011. This morning's data point showed a 9.0% improvement y/y while the rolling 4-wk average is better by 10.2%. By most accounts the labor data remains strong and shows ongoing improvement. Last week we had flagged a speed bump in the data, but this morning's numbers suggest that a speed bump may have been all that it was.

 

We continue to expect that the strengthening labor market data will exert ongoing upward pressure on long-term rates. This morning the 10-year treasury yield is at 2.99%, just one basis point away from its September 5 high. We've demonstrated how bank stocks are very positively correlated to 10-year yields while homebuilders are very negatively correlated. For more on that, see our publication from 11/22/13 entitled #Rates-Rising: A Current Look at Rate Sensitivity Across Financials.

 

The Data

Prior to revision, initial jobless claims fell 41k to 338k from 379k WoW, as the prior week's number was revised up by 1k to 380k.

 

The headline (unrevised) number shows claims were lower by 42k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 4.25k WoW to 346.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.7%

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 1

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 2

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 3

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 4

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 5 2

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 6

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 7

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 8

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 9

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 10

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 11

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 12

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 13

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 19

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 14

 

Yield Spreads

The 2-10 spread rose 6 basis points WoW to 258 bps. 4Q13TD, the 2-10 spread is averaging 240 bps, which is higher by 6 bps relative to 3Q13.

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 15

 

INITIAL CLAIMS: CHUGGING ALONG NICELY HEADING INTO 2014 - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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