April 4, 2014

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Video | McCullough: Another Reason Why This Market May Be Done Going Up


Hedgeye CEO Keith McCullough spoke with Fox Business' Liz Claman earlier today about why investors should be concerned about recent equity and bond flows.

Poll of the Day Recap: Don’t Trust Uncle Sam’s Inflation Numbers

Who hasn’t felt “breakfast sticker shock” in recent weeks with the price of coffee, pork, and bacon all on the rise? Fact: food prices have surged in 2014. The CRB Foodstuffs Index? It’s up almost 20% year-to-date and up 7.5% year-over-year. But according to the government, inflation remains muted.


So, what we wanted to know in today’s poll is, Do you trust the U.S. government’s inflation numbers? 


Apparently there’s not a whole lot of trust out there.


At the time of this post, a staggering 87.5% responded NO; 12.5% said YES.

(Voters sharply swung so much in one way, that we didn’t receive any comments on why people voted YES.)


Here’s a sampling of some of the responses we received:

  • "When an entity has both the incentive to manipulate reality and all the tools to affect change, no good can come from that situation. Ever."
  • "First, the methodology for calculating "official" inflation is flawed beyond credibility. Second, the government has a vested interest in the inflation game, so their numbers are suspect… Finally, a trip to the grocery store, the gas pump, or the doctor's office puts the lie to all of the official numbers. The only real question remaining, then, is how does this Fed/Treasury/Government/Old Wall Street game play out? How does it end? Accelerated inflation? Inflation then deflation? The real markets running away from Fed control?"
  • "The government bastardized (most governments on the planet) this statistic long ago to save money, control sentiment (Propaganda) and create their own reality.  It takes about one brain cell to see this after watching their actions for 30 years.  They are scared stiff of people thinking the 1970's could happen all over again or something similar. Too late, the deed has been done and nothing can stop the ‘momo’ so brace yourself to pay the price over the next few years, maybe next few decades."
  • "I don't think that the government is using an adequate measure of inflation. In my world I see wage stagflation and price appreciation specifically on government run agencies and utilities.  Purchasing power is decreasing daily."
  • "It is probably not possible to measure inflation accurately and one would have to be naïve to see the motivation to under report.  Why does the bond market believe it?"


Want a Haircut & Fries With Your Skinny Jeans? | $URBN

Takeaway: What is Urban Outfitters doing? Building palaces?

Want a Haircut & Fries With Your Skinny Jeans? | $URBN - conan jeggingsext 640x360 120220101049 0


Urban Outfitters Moves Into Space Ninety 8

  • "With 37,000 square feet on four levels and a directive from chief executive officer Richard Hayne to come up with new ideas, the barriers in some ways were lifted."
  • "The non-traditional retail experience, as the company refers to the space, features a strong food component. The Gorbals Restaurant and Bar, operated by Ilan Hall, 'Top Chef' and host of Esquire TV’s 'Knife Fight,' will be in residence on the third floor. Hauser said food will also play a role in the 57,000-square-foot Urban Outfitters flagship opening in Herald Square in June, which will have a coffee shop, hair salon and eyeglass shop. Urban Outfitters’ Fifth Avenue flagship recently added a coffee bar."
    Want a Haircut & Fries With Your Skinny Jeans? | $URBN - 1

Takeaway From Hedgeye’s Brian McGough:

We’re not really sure we understand what’s going on with Urban Outfitters’ new prototypes. A coffee shop? That could work. But restaurants and hair salons? That’s a bit much—if not borderline alarming. How many tourists are looking for a fresh trim when shopping for skinny jeans in Herald Square? Urban Outfitters is looking at new categories as growth drivers. We get it. But it sounds like the brand is running out of things to put in these enormous boxes that are 4-5 times bigger than the typical footprint. We'd rather they keep the boxes a bit smaller, and put more focus on what's inside.


Editor's Note: This is a complimentary research excerpt from Hedgeye Retail Sector Head Brian McGough. Follow Brian on Twitter @HedgeyeRetail

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Jobless Claims: More Good News

Takeaway: Labor market data is getting better as this week's claims numbers mark a continuation of the positive news that began last week.

Editor's Note: This research note was originally published April 3, 2014 at 10:20 a.m. by Hedgeye’s Financials team Jonathan Casteleyn & Josh Steiner. Follow Jonathan & Josh on Twitter @HedgeyeJC and @HedgeyeFIG.

Labor Market Tailwinds

Today's initial jobless claims data is positive and marks a continuation of the positive inflection in labor market data seen last week, bringing the new trend to two weeks. As a reminder, we focus on the year-over-year rate of change in the rolling, non-seasonally adjusted data. This week, claims were lower by 8.0% year-over-year, which is better versus the prior week's 7.1% improvement year-over-year.


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More importantly, the trend had been deteriorating in the year-to-date period until the inflection two weeks ago. We've now seen positive data for two weeks in a row, which matters because we think it may shed some light on the ongoing debate about what role weather may or may not be playing in the economic data.  


As we said last week:

One of the arguments put forward in support of the generally weak 1QTD data has been weather. If weather is playing a role in suppressing the strength of the data then one would expect that as we move from the winter to the spring months we could reasonably expect to see improvement in the data. The next few weeks of data should be important in this regard, as they may serve to answer this fundamental question. 

The Data

Prior to revision, initial jobless claims rose 15k to 326k from 311k week-over-week, as the prior week's number was revised down by -1k to 310k.


The headline (unrevised) number shows claims were higher by 16k week-over-week. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.5k week-over-week to 318k.


The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -8.0% lower year-over-year, which is a sequential improvement versus the previous week's year-over-year change of -7.1%


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