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MD: REMOVING MEDNAX FROM INVESTING IDEAS

Takeaway: We are removing MEDNAX from Investing Ideas.

MEDNAX is coming up against some difficult comparisons in their Q413 report.  In fact, births face the toughest compare in the last six years when they report numbers and guide Q114.   

 

MD: REMOVING MEDNAX FROM INVESTING IDEAS - baby

 

Our recent physician survey is telling us births are likely down in the US in Q413.  A second quarter in a row of negative year over year organic growth, and likely worse sequentially than Q3, is not a risk we want to take. 

 

Meanwhile, sellside sentiment is falling, which is negative for MD shares.  The sellside actually does a good job on MD, unlike most other stocks.  

 

Bottom line: Most of our catalysts to the upside seem played out.  We'd rather sidestep the quarter and take another crack at the name from a lower price and lower expectations.

 

MD: REMOVING MEDNAX FROM INVESTING IDEAS - deliveries completed JAN13


THE SBUX-WFM CONNECTION

Takeaway: Does a negative view on WFM heed caution on SBUX?

It was not too long ago that the success of Starbucks and Whole Foods Market was linked to the “higher end” consumer, particularly when compared to their counterparts McDonald’s and Walmart.  Accordingly, both SBUX and WFM have been strong performers, as the “higher end consumer” has proven to be much more resilient in a stagnant economy than others.

 

THE SBUX-WFM CONNECTION - link

 

 

With another downgrade today, the street has turned decidedly negative on WFM.  We offer no opinion on the stock at this time, but a negative outlook could suggest that “higher end” consumers are starting to feel the pinch.  If this plays out and WFM sees same-store sales growth begin to slow, we have reason to believe the same could happen at SBUX.

 

The tepid jobs number reported earlier today is also concerning and, on the margin, bearish for SBUX.  We continue to believe street estimates are too high for SBUX and with 78% of analysts having a “buy” rating on the stock (versus only 50% for WFM), sentiment could be peaking.  After being one of the biggest fans of SBUX over the past 5 years, we see plenty of reason to be cautious on the stock in the early stages of 2014.

 

THE SBUX-WFM CONNECTION - SBUX EEEG

 

THE SBUX-WFM CONNECTION - SBUX ANALYST

 

THE SBUX-WFM CONNECTION - WFM EEEG

 

THE SBUX-WFM CONNECTION - WFM ANALYST

 

 

Feel free to call with questions.

 

 

Howard Penney

Managing Director

 


Reality Check on the Jobs Report

Takeaway: We wouldn't dismiss today's jobs data outright, but we wouldn't materially shift our positioning on one outlier print.

Forecasting Folly:  If you’ve followed us here at Hedgeye for any period of time, you already know that we don’t pretend to have any edge on the monthly non-farm payrolls figure. That shouldn’t come as a surprise.  While myriad market pretenders toss out their predictions, no real pro or analyst will.

 

Incidentally, what really matters is non-seasonally adjusted rolling US Jobless Claims.

 

Reality Check on the Jobs Report - 778

 

The BLS and ADP figures are certainly co-integrated on a multi-month basis and the trend in the initial claims and other higher frequency employment data can offer some probability weighted, directional insight and some fertile fodder for the tea leafers, but predictive value on a month to month basis is notoriously poor. 

 

It’s not the number itself, but the markets reaction to it that drives our subsequent allocations.

 

Summary Take:  In short, +74,000 was obviously a disappointment vs. prevailing expectations and an outlier verses the balance of higher frequency labor market data. We wouldn't dismiss today's data outright, but we wouldn't materially shift our positioning on one outlier print.

 

With 273K people out of work due to bad weather (vs. an average of 166K over the prior 5 December’s) weather is being held out as the biggest distortive factor. With our retail and restaurant analysts (who rarely cite weather as a discrete swing factor) citing weather as a drag on traffic also, we'll assume the unusually inclement weather likely did, indeed, have some impact on construction and transports/trade employment and drag on hours worked.   

 

Reality Check on the Jobs Report - keepcalm

 

Strategy:  The unsurprising price response to today’s jobs data is down dollar/down bonds as “no-taper” expectations get priced in at the margin. (We outlined how to play a breakdown in the dollar in our 1Q14 macro themes call yesterday.) While we'll monitor the dollar weakness closely, in regards to the more immediate term and today’s employment data specifically, we’ll take the other side of overbought/oversold moves in today’s price action.   

 

In the context of the broader labor market data, where the preponderance of evidence remains positive with ADP, initial claims, ISM manufacturing and ISM services all reflecting moderate, ongoing improvement,  the BLS data sits as a single negative outlier. 

 

Unless we see confirming fundamental evidence alongside a shift in risk management signals (across SPX, VIX, DXY, 10Y Treasury), we’re unlikely to pivot on our generally positive view of the domestic labor market because of today’s data in isolation – particularly given the positive revision, the weather caveat and the ongoing, significant seasonal distortion.   

 

Editor's note: This is an excerpt from Hedgeye research earlier this morning. If you like what you see and would like more information on how you can subscribe to our research click here.

 

 

 


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DECEMBER EMPLOYMENT: AT LEAST IT'S INTERESTING

SUMMARY 

Forecasting Folly:  If you’ve followed us for any period of time, the fact that we don’t pretend to have an edge on the monthly NFP figure is not a surprise. 

 

The BLS and ADP figures are certainly co-integrated on a multi-month basis and the trend in the initial claims and other higher frequency employment data can offer some probability weighted, directional insight and some fertile fodder for the tea leafers, but predictive value on a month to month basis is notoriously poor. 

 

It’s not the number itself, but the markets reaction to it that drives our subsequent allocations.

 

Summary Take:  In short, +74K was a disappointment vs. prevailing expectations and an outlier verses the balance of higher frequency labor market data. We wouldn't dismiss today's data outright, but we wouldn't materially shift our positioning on a single, outlier print.

 

With 273K people out of work due to bad weather (vs. an average of 166K over the prior 5 December’s) weather is being held out as the biggest distortive factor. With our retail and restaurant analysts (who rarely cite weather as a discrete swing factor) citing weather as a drag on traffic also, we'll assume the unusually inclement weather likely did, indeed, have some impact on construction and transports/trade employment and drag on hours worked.   

 

Strategy:  The unsurprising price response to today’s data is down dollar/down bonds as “no-taper” expectations get priced in at the margin.  We outlined how to play a breakdown in the dollar in our 1Q14 macro themes call yesterday (REPLAY) – While we'll monitor the dollar weakness closely, in regards to the more immediate term and today’s employment data specifically, we’ll take the other side of overbought/oversold moves in today’s price action.   

 

In the context of the broader labor market data, where the preponderance of evidence remains positive with ADP, initial claims, ISM mfg and ISM services all reflecting moderate, ongoing improvement,  the BLS data sits as a single negative outlier. 

 

Unless we see confirming fundamental evidence alongside a shift in risk management signals (across SPX, VIX, DXY, 10Y Treasury), we’re unlikely to pivot on our generally positive view of the domestic labor market because of today’s data in isolation – particularly given the positive revision, the weather caveat and the ongoing, significant seasonal distortion.   

 

Keith shorted BOND (etf) and long-term treasuries (TLT) in real-time alerts on this morning’s weakness in yields.

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Employment Summary Table Dec 

 

DECEMBER EMPLOYMENT REVIEW:   Below we review, in detail, this morning’s employment data from the BLS, highlight some potential issues impacting the January release and take a summary look at trends in the distribution of employment. 

  • Household Survey Employment (CPS):  Employment as measured by the Household Survey increased +143K on the back of last month’s reported +958K increase.  The household survey is notabably volatile but, similar to the ADP data, is consistent with the NFP figures on a multi-month moving average basis.
  • Unemployment rate:  Declined to 6.7% from 7.0%  as total unemployed dropped -490K and total employed increased +143K
  • Labor Force Participation:  Dropped another 19bps sequentially to 62.79 from 62.98 as the total labor force dropped -347K MoM (the net of -490K unemployed plus +143K increase in employment) and civilian population increased +178K
  • Weekly Hours:  Down small to 34.4 vs. 34.5 prior (likely impacted by weather)
  • Employment by Age:  each age cohort across the 20-44 Year old demographics accelerated sequentially while employment growth for 45-64 year olds decelerated in December.
  • Government Employment: State & local gov’t employment growth holding positive for a six consecutive month while Federal payroll growth held flat at -2.8% YoY to close the year. 
  • Ave Hourly Earnings:  Earnings slowed 20bps sequentially to 1.8% YoY.   Not a growth number particularly supportive of accelerating consumption
  • Revision:  the establishment report showed a net positive two month revision of +38K with the October estimate unchanged and November revised to 241K from 203K last month, Household Survey revised to +958K from +818K last month
  • Part-time Employment:  Part-time employment dropped 89K MoM, down -1.0% YoY.  The Trend in part-time employment remains one of decline.  
  • Industry Level Notables:  Construction employment (weather impacted) was the worst, dropping 16K MoM and ending a 6mo streak of positive gains. Notably, healthcare shed jobs for only the 2nd month in the last 10 years in December

 DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Unemployment Rate 2

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Weather December

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Employment by Age

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - State   Local Gov t  Dec

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - U

 

 

EMPLOYMENT DISTRIBUTION: PRE-RECESSION vs. NOW 

 

Below is a quick comparative study of the distribution of employment by industry in the peri-recession period.   As can be seen, at the broader Industry level, the shifts have not been particularly outsized. 

 

The prevailing bearish narrative that the post-recession economic edifice is structurally weaker and the employment recovery has been largely illusory because we’ve only added low wage and part-time jobs seems to be overstated.   

 

Part-time employment is in retreat, Temp employment is increasing, construction and manufacturing jobs are currently seeing some positive momentum, and mining and energy employment (which generally pay comparatively higher wages) continue to gain in share, to name some positive dynamics. 

 

Yes, participation is declining (in excess of that implied by demographics) and long-term and structural unemployment will remain TREND issues, but the great, job-quality-deterioration-narrative appears somewhat fallacious.  

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - ED

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - Aggregate Earnings

 

 

POTENTIAL JANUARY IMPACTS: 

Unemployment Insurance:  The loss of EU unemployment benefits for some 1.3M individuals at the close of the year has been well advertised.  If jobless benefits aren’t renewed by congress and the bulk of those individuals move from unemployed to out of the labor force the LFPR will decline and the Unemployment Rate will benefit.  The largest impacts, should this occur, are likely to be observed over the first couple months. 

 

Annual Benchmark Revision:  the Census Bureau applies an annual population control adjustment to the Civilian Non-institutional Population alongside the January release every year.  Historically, the magnitude of the January adjustment has ranged from tens to hundreds of thousands or even millions of individuals.  An outsized revision to the January 2014 data could shift the unemployment variable dynamics from their current trend

 

DECEMBER EMPLOYMENT:  AT LEAST IT'S INTERESTING - CNP

 

Christian B. Drake

Associate

@HedgeyeUSA



Got Growth Divergence?

Client Talking Points

EUROPE

Swiss and German stocks rising +1% and leading the follow-through charge this morning (in spite of continued weakness across major Asian Equity indices ... see the KOSPI down another -0.4% overnight). Take some time today or over the weekend to review our Q1 Global Macro Themes Deck from yesterday on the why that could continue.

CHINA

Whack! The Shanghai Composite fell down another -0.7% last night to -4.9% year-to-date (compare that to Austria which is up +5% year-to-date). We have no interest in being long China’s major equity index here on the red start to the year. Incidentally, New Zealand up +2.7% year-to-date looks good!

UST 2YR

What a start for the short-end of the yield curve with fresh 3-month highs of 0.43% for the 2-year. We will see if the reaction to the jobs report is enough to blast through the September highs again for the 10-year yield today. There's no resistance to 3.05%, then 3.09% after that on the 10s.

Asset Allocation

CASH 30% US EQUITIES 16%
INTL EQUITIES 18% COMMODITIES 6%
FIXED INCOME 0% INTL CURRENCIES 30%

Top Long Ideas

Company Ticker Sector Duration
GHL

Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL. So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.

FXB

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.

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.

Three for the Road

TWEET OF THE DAY

CNBC's coverage of the jobs report has devolved into a lotto contest for anyone dumb enough to guess @KeithMcCullough

QUOTE OF THE DAY

"Talent wins games. But teamwork and intelligence win championships."

-Michael Jordan

STAT OF THE DAY

The data breach at Target was significantly broader than originally reported: The company said Friday that 70 million customers had information such as their name, addresses, phone numbers and e-mail addresses hacked in the breach. The company had previously said 40 million shoppers had their credit and debit card information stolen in the weeks following Thanksgiving.


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