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INITIAL CLAIMS: SIZING UP THE LABOR CYCLE

Takeaway: This week we take a step back and consider where we are in the cycle.

Sizing up the Cycle

There's not too much incremental in this week's labor market report, so rather than make something out of nothing from the data, we'll try and offer a bit of context on where we are in the cycle. The trendline rate of improvement suggests that the year-over-year change in rolling NSA claims should converge to zero sometime in the late-April/early-May time period as the chart below shows. Historically, that "zero convergence" has marked the metaphorical late innings of the economic expansion. Consider the last two cycles.  Progress converged to zero around December 2006 and April 1999. The expansion persisted for some time thereafter, and equities continued to rise, but both were indications that the cycle was nearing the end of its expansion - arguably fueled by late-stage rotation into equities by retail investment. We don't want to imply that we can pin the tail on the donkey perfectly with this data series, but it has, in the past, been a useful leading indicator and we expect it will again serve as such in this current cycle. 

 

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Yield Spreads

The 2-10 spread fell -1 basis points WoW to 237 bps. 1Q14TD, the 2-10 spread is averaging 242 bps, which is higher by 1 bps relative to 4Q13.

 

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Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Cartoon of the Day: Tesla | $TSLA

Cartoon of the Day: Tesla | $TSLA - Tesla.NJ3.13.2014

 

New Jersey just banned automaker Tesla from selling cars directly to consumers in the Garden State, becoming the third, following Arizona and Texas, to impose such restrictions on the company.

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CALL TODAY: The World in 2050? Thought Leader Discussion with Professor Laurence C. Smith

Takeaway: We are hosting a thought leadership & investing discussion with Prof Laurence Smith today at 1pm. The dial-in & call details are below

"Prediction is very difficult.  Especially about the future"

-Niels Bohr

 

 

You are invited to join Hedgeye's Macro Team and Director of Research Daryl Jones for a special thought leadership and investing discussion with Laurence C. Smith, Professor and Chair of Geography and Professor of Earth & Space Sciences at UCLA and author of THE WORLD IN 2050.

 

Natural resource demand, population demographics, economic globalization and climate change will be the ascendant, global forces shaping civilization over the next half century.   

 

We will explore the implications of these emerging dynamics, the challenges for governments and society and prospective investment opportunities born out of a sweeping shift in the distribution of people and power.   

 

The call will be held on Today, March 13th at 1:00pm EST

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 744597#
  • Materials: CLICK HERE (Slides will be available approximately one hour prior to the start of the call.)

Please email  for more information.

 

 

ABOUT PROFESSOR LAURENCE C. SMITH

Dr. Laurence C. Smith is Professor and Chair of Geography and Professor of Earth & Space Sciences at UCLA. His research includes topics of Arctic climate change, hydrology, carbon cycles and satellite remote sensing. He has published over 70 peer-reviewed articles including in the journals Science, Nature, and PNAS and won more than $7.7M in research funding from the National Science Foundation and NASA. In 2006 he was named a Guggenheim Fellow by the John S. Guggenheim Foundation and in 2007 his work appeared prominently in the Fourth Assessment Report of the United Nations' Intergovernmental Panel on Climate Change (IPCC). He is currently serving on steering committees for the National Research Council, NASA, and the World Economic Forum. He receives frequent requests to deliver keynotes at public and private speaking events, and in 2012 and 2014 was an invited speaker to the World Economic Forum in Davos. 

His general-audience book THE WORLD IN 2050: Four Forces Shaping Civilization's Northern Future (Plume: New York, 2011; U.K. edition titled THE NEW NORTH, Profile: London, 2011 with translations in 14 languages) synthesizing cross-cutting trends in natural resource demand, population demographics, economic globalization, and climate change with particular emphasis on northern countries was winner of the Walter P. Kistler Book Award and a NATURE Editor's Pick of 2012. His work has received coverage in The Wall Street Journal, The Economist, The Los Angeles Times, The Washington Post, The Globe and Mail, The Financial Times, Discover Magazine, NPR, CBC Radio, BBC and others.


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European Banking Monitor: Russia The Big Mover | $RSX

Editor's Note: This is a complimentary research note from Hedgeye Analyst Matthew Hedrick published on March 10, 2014 at 12:00 PM. 

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email sales@hedgeye.com. And, for more information on our services, click here.

 

European Banking Monitor: Russia The Big Mover | $RSX - 3 13 2014 12 11 10 PM

 

European Financial CDS - The big mover in European swaps last week was Sberbank of Russia, which widened 72 bps to 286 bps from 214 bps. Russia's largest bank has often been a good indicator on geopolitical as well as commodity pressures. Elsewhere across Europe, the Financials were much more sanguine with broad-based improvement.

 

European Banking Monitor: Russia The Big Mover | $RSX - zz. banks large

 

Sovereign CDS – Sovereign swaps were tighter across the globe last week with the sole exception of the US, where swaps were unchanged at 30 bps. Europe put up broad-based improvement in spite of turmoil in peripheral Ukraine.

 

European Banking Monitor: Russia The Big Mover | $RSX - z. sov1M

 

European Banking Monitor: Russia The Big Mover | $RSX - z. sov2

 

European Banking Monitor: Russia The Big Mover | $RSX - z. sov3

 

Euribor-OIS Spread – The Euribor-OIS spread tightened by 3 bps to 11 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

European Banking Monitor: Russia The Big Mover | $RSX - z. euribor

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Retail Callouts (3/12): RH, WSM, AMZN

Takeaway: McGough on the road - Richards pinch-hitting...WSM strong rev #'s bullish for RH, AMZN announces prime $ increase, Alibaba recruiting

EVENTS TO WATCH

 

THURSDAY

  • ARO - Earnings Call: Thursday 3/13, 4:15pm
  • ZUMZ - Earnings Call: Thursday 3/13, 5:00pm
  • ULTA - Earnings Call: Thursday 3/13, 5:00pm

 

FRIDAY

  • ANN - Earnings Call: Friday 3/14, 8:30am
  • BWS - Earnings Call: Friday 3/14, 9:00am
  • BKE - Earnings Call: Friday 3/14, 10:00am
  • HIBB - Earnings Call: Friday 3/14, 10:00am

 

COMPANY NEWS

 

WSM - 4Q13 Earnings

 

Takeaway: 10.4% comp was driven by a big beat from DTC, with considerable strength coming from the furniture concepts. This is the first meaningful beat we've seen this quarter and it was possible for two reasons; 1) e-commerce penetration offset weather induced traffic declines and 2) furniture sales are more immune to inconsistent traffic patterns than impulse categories. Great read through for our favorite name, RH, who also leans heavily on the direct channel.


Retail Callouts (3/12): RH, WSM, AMZN - chart1 3 13

 

AMZN - Amazon Prime and Amazon Student Prime Membership Fee Changes

(http://www.amazon.com/gp/help/customer/display.html?ascsubtag=bmTVAqqiEeOhW9pxbuniXwcv01_kac.3_0_0_0&nodeId=201482600)

 

  • "For the first time since it was introduced nine years ago, the price of Prime is going up. Existing Prime members will pay $99 per year on their annual renewal date and Amazon Student members will pay $49."
  • "The Prime Fresh membership fee will remain unchanged at $299."

 

Takeaway: Step 1 for AMZN was to get users hooked on its Prime service, now it's trying to take price. That being said, 9 years is a long time to hold price steady and one could argue that AMZN should have done this a long time ago. Prime is a sticky enough service that the $20 price hike won't chase many away.

 

 Alibaba - Alibaba Ramping Up Efforts to Sell U.S. Brands in China

(http://blogs.wsj.com/digits/2014/03/11/alibaba-ramping-up-efforts-to-sell-u-s-brands-in-china/)

 

  • "Chinese e-commerce giant Alibaba Group is ramping up efforts to bring U.S. brands to consumers in its home country. Alibaba...says it will offer U.S. companies several ways to get their merchandise to China, including through its Alipay payments subsidiary and sophisticated shipping methods. It is also getting closer to launching a new U.S. online marketplace called 11Main.com for small- and medium-sized brands and manufacturers."
  • "ChannelAdvisor...has partnered with Alibaba to help U.S. companies sell into mainland China using its software. Its clients will be able to more easily list, sell and deliver items on Alibaba’s Tmall.com site. U.S. e-commerce companies have struggled to gain a foothold in China, in part because of Alibaba’s headstart with Tmall and its eBay-like site Taobao."

 

Takeaway: A number of US companies already use Tmall as a platform in China. NKE, Addy, New Balance, etc. with many more to come. Alibaba takes a lot of the guess work out the equation allowing brands to set up localized brand shops that Chinese consumers can identify with. Definitely a good starting point for brands who have struggled to gain a foothold in the Chinese marketplace.

 

OTHER NEWS

 

What's Selling: Running

(http://www.wwd.com/footwear-news/retail/whats-selling-running-7587138)

 

MAINE RUNNING CO., Portland, Maine 

  • Brooks Adrenaline GTS
  • Asics GT-2000
  • Saucony Guide 7

Top trend: “Definitely the more cushioned options for us are getting a lot of attention,” said Ben Webber, assistant GM. “People are asking about shoes that have a lower offset but with more cushioning. It’s crazy how the pendulum swings.”

 SALT LAKE RUNNING CO., Draper, Utah

  • Altra Superior and Olympus (tie)
  • Hoka One One Stinson Trail 
  • Adidas Supernova Glide Boost

Top trend: “Trail shoes are working with all the trails opening back up,” said manager David Buckle. 

 FITRIGHT NW, Portland, Ore. 

  • Brooks Adrenaline GTS
  • Saucony Guide 7 and Ride 6 (tie)
  • Asics GT-2000 

Top trend: “Color is still a big push. People really enjoyed when color started to show up on the wall. It rains here a lot and when it’s colder, people want [nice] things to look at,” said co-owner Robb Finegan. “White is trending with a lot of the vendors, but we got a big shock this spring with people wanting more color and not the white mesh.”

 

DDS - Moody's Lifts Dillard's Rating

(http://www.wwd.com/business-news/financial/moodys-lifts-dillards-rating-7587468)

 

  • Moody’s Investors Service Wednesday upgraded Dillard’s Inc.’s corporate family rating one notch to 'Ba1'…"
  • "Moody’s also raised the...retailer’s probably of default rating one notch to 'Ba1' and its senior unsecured notes a tick to 'Ba2'…"
  • "In assigning the ratings, Margaret Taylor, vice president and senior credit officer at Moody’s, noted the retailer’s 'ability to maintain its operating margin above 5.5 percent [of sales] despite gross margin erosion in the fourth quarter.'"

 

TGT - Target Apologizes for Photoshop Gaffe

(http://www.wwd.com/media-news/fashion-memopad/off-target-7587760)

 

  • "...Target apparently ran Photoshopped images of overly skinny teens wearing bathing suits on its Web site. The images received sharp criticism from national media and there was anger throughout the blogosphere as the photos went viral."
  • "Target was apologetic on the matter. 'In response to your query about the swimsuit image on target.com, this was an unfortunate error on our part and we apologize. We have removed the image from our Web site,' a company spokesman said. Asked how the mistake occurred, 'It was the result of a photo editing error on our part.'”

 

BEBE - Bebe Entering Eyewear Market

(http://www.wwd.com/accessories-news/eyewear/bebe-entering-eyewear-market-7584901)

 

  • "Bebe is entering the eyewear market with a new collection of sunglasses for spring."
  • "The range, which includes a variety of styles done in mixed metal and plastic, retails for $68 to $88 and will be sold in-store and online."

 


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