prev

NEW HOME SALES = MAY FLOWERS

Takeaway: The New Home Market shows signs of life in May, but pricing trends in the existing home market continue to weaken.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

NEW HOME SALES = MAY FLOWERS - Compendium 062414

 

Today's Focus: May New Home Sales & April Case-Shiller and FHFA

 

May New Home Sales - Key Takeaways

* Solid report as New Home Sales increase +75K sequentially (+18.6% MoM) in May, with the YoY reversing to +17% after three consecutive months of negative YoY growth.

 

* All regions showed positive accelerations in sales – most notably, the Northeast region saw YoY Sales improve to +36% YoY in May after negative year-over-year growth of -39.5%, -18.2%, and -31.3% over the February-April period. 

 

* Inventory:  New Homes for Sale increased to 188K from 187K prior – an increase of +0.5% MoM and +16% YoY. 

 

So, for reasons we’ve highlighted previously (QM, Investor Demand, Student Loan debt & Lower tier income growth stagnation, etc), the new Home market continues to look better on balance than the existing market where the 750K+ tier remains the primary source of strength. 

 

NEW HOME SALES = MAY FLOWERS - New Homes SaleS Absolute   YoY   3Y

 

NEW HOME SALES = MAY FLOWERS - New Home Sales LT w Summary Stats

 

NEW HOME SALES = MAY FLOWERS - New Home Sales Regional 

 

NEW HOME SALES = MAY FLOWERS - New Home Sales Regional YoY   

 

NEW HOME SALES = MAY FLOWERS - New Homes For Sale Absolute   YoY   

 

 

 

April S&P/Case-Shiller Home Price Report (& FHFA) - Key Takeaways

The rearview report for April (effectively March data for CS) says…..

 

* All primary price indices telling a congruous story with price deceleration now in full effect across Corelogic, Case-Shiller & FHFA, with the deceleration accelerating in the latest readings.

 

* Case-Shiller:  decelerates 160bps sequentially to +10.8% YoY from +12.4% in March, the fastest rate of sequential deceleration since March of 2008

-          Prices decelerating across 19 of 20 cities with Boston the lone city registering sequential acceleration

-          Demand Model looking solid with case-shiller still tracking pending nicely on an 18-mo lag. 

 

* FHFA:  decelerates 60bps to +5.9% YoY from 6.5% in March, matching the fastest rate of sequential deceleration since October of 2011.

 

NEW HOME SALES = MAY FLOWERS - Case Shiller NSA TTM YoY

 

NEW HOME SALES = MAY FLOWERS - Case Shiller vs Pending Home Sales 18Mo Lag

 

NEW HOME SALES = MAY FLOWERS - Case Shiller NSA Index Level LT

 

NEW HOME SALES = MAY FLOWERS - Case Shiller Scatter Index Weight vs Price Growth

 

NEW HOME SALES = MAY FLOWERS - FHFA NSA TTM YoY

 

 

Bottom Line:

The Existing Home Market and New Home Market continue to bifurcate with the latter showing marginal signs of strength and the former continuing to cool. Pricing trends, however, are softening as falling demand in the existing market manifests as pricing weakness on a lag.

 


About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.

  

About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.

 

Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.

 

 

Joshua Steiner, CFA

 

Christian B. Drake


Can the U.S. Consumer Handle the Pinch?

Following up on a note we published yesterday from the MACRO team on inflation we are publishing a chart that takes a broader look at consumer inflation trends.  It was pointed out to us yesterday that a fairly unique set of circumstances is leading to this bout of protein inflation – nothing cures high prices like high prices especially in commodity land.  This is certainly true in some respects, but the consumer inflation pinch is coming from multiple sources. 

 

Hedgeye’s MACRO GURU, Darius Dale, created an index that tracks food, fuel and utility inflation for the median consumer.  It’s a weighted average of the YoY and MoM percentage change in the monthly averages of the CRB Foodstuff Index (CRB FOOD Index), the American Automobile Association’s Daily National Average Gasoline Price Index (3AGSREG Index) and the iBoxx Electricity Price Index (IUTPELC Index). The weights are based on their respective shares of PCE (i.e. 12.45%, 6.39% and 8.28%, respectively).

 

Holding current prices flat, this index should accelerate towards +13-15% YoY by year’s end. On a MoM basis, the YTD pattern is tracking very similar to early 2008 and early 2011. While the “pinch” on consumer’s wallet isn’t as sharp in magnitude as it was in those periods, we’d argue that the consumer/economy may be in a similarly precarious position now. 

 

Can the U.S. Consumer Handle the Pinch? - z.  dd

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst 



the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Retail Callouts (6/24): ICSC, TGT, WMT, AMZN

Takeaway: ICSC numbers strong as 2Q nears close. No quick fix to problems that led to Steinhafel's ouster. TGT reworks shipping policy.

EVENTS TO WATCH

 

Wednesday (6/23)

  • BBBY - Earnings Call: 5:00pm

 

Thursday (6/24)

  • NKE - Earnings Call: 5:00pm

 

Friday (6/25)

  • FINL - Earnings Call: 8:30am

 

ECONOMIC DATA

 

ICSC - Chain Store Sales Index

 

Takeaway: Three solid weeks of data as the 2nd quarter nears a close. Numbers have looked much better over the last 12 weeks compared to the start of the year. QTD growth rate up 20bps from last year.

 

Retail Callouts (6/24): ICSC, TGT, WMT, AMZN - Chart 1 6 24 2014

 

COMPANY NEWS

 

TGT - Retailer Target Lost Its Way Under Ousted CEO Gregg Steinhafel

(http://online.wsj.com/articles/retailer-target-lost-its-way-under-ousted-ceo-gregg-steinhafel-1403577233)

 

  • "Just days before Chief Executive Gregg Steinhafel resigned from Target Corp., a small group of senior executives huddled together to discuss ways to improve the flagging retailer's fortunes. Shortly after their gathering on May 2, executives delivered a message to the board: If Mr. Steinhafel didn't leave immediately, others would. The following Monday, the CEO was out."
  • "The sequence of events, according to people close to the situation, was the climax of a tense narrative that had been playing out within Target's top ranks...interviews with more than two dozen former and current Target executives, managers and vendors reveal a deep malaise within a chain that, increasingly, had lost its way. Management became mired in a new thicket of bureaucracy. Creative leeway—once the DNA of the chain affectionately dubbed 'Tar-zhay'—took a back seat to rigid performance metrics."
  • "Mr. Steinhafel held the view that online purchases risked cannibalizing sales from visits to physical stores, say former employees. It wasn't until 2009 that Target embarked on a plan to build its own website, an effort it called 'Project Everest.'"

 

Takeaway: Target's decision to enter Canada and the data breach are polarizing events which helped catalyze the coup documented here. But, that was the climax of a series of misguided initiatives that guided TGT away from its core. As CEO during this time period, the blame falls squarely on Steinhafel's shoulders - right or wrong. We give the existing management team credit for realizing that change needed to be made. But, in order to fix the structural issue inside the company it’s going to cost money…lots of it. There are no quick fixes to the underlying problems (P-Fresh, RedCard, e-commerce) if the company wants to drive long term profitability.

 

TGT - Target further incentivizes customers to shop online

(http://www.retailingtoday.com/article/target-further-incentivizes-customers-shop-online)

 

  • "Target is giving customers added incentive to shop online by offering free shipping for all orders of $50 or more. The new policy, which takes effect immediately, excludes oversize and heavy items, which will be subject to a handling fee."
  • “'We’ve heard from guests they don’t fully understand our shipping policy — so we’ve changed it to make it simpler and reduce the friction in making purchases on the site,' said Jason Goldberger, SVP, Target.com and Mobile. 'Providing our guests a better free shipping offer is just one of the many ways we continue to improve the Target.com experience.'”

 

Takeaway: Target already offered free shipping on orders over $50, but the number of items eligible was limited. This now unifies TGT's shipping policy and puts it in line with its peers. Here's how TGT stacks up to AMZN and WMT. AMZN - free shipping for Prime members and orders over $35. WMT - free shipping on orders over $50 (6-9 day delivery window). TGT - free shipping for RedCard member and items over $50 (3-5 day shipping window). We can't imagine that WMT lets TGT hold the advantage for long.

 

OTHER NEWS

 

WMT - Wal-Mart Appoints 13 Merchandising Executives in Shake-Up

http://www.bloomberg.com/news/2014-06-23/wal-mart-appoints-13-merchandising-executives-in-latest-shake-up.html)

 

  • "Wal-Mart Stores Inc. (WMT), the world’s largest retailer, named 13 executives to its U.S. merchandising operations, marking the latest shake-up since Chief Executive Officer Doug McMillon took the reins in February."
  • "As part of the changes, Scott Huff will be promoted to executive vice president overseeing merchandising operations for the U.S., according to a company memo sent by U.S. Chief Merchandising Officer Duncan Mac Naughton. Huff has been at Wal-Mart since 1994, when he started as an intern. Seven of the 13 executives named are women."


M - Macy’s adds Starbucks exec to board

(http://www.retailingtoday.com/article/macy%E2%80%99s-adds-starbucks-exec-board)

 

  • "Macy’s has added Annie Young-Scrivner, EVP of Starbucks Coffee Company and president of its Teavana business, to its board of directors."
  • "The addition of Young-Scrivner brings the size of Macy's board to 11 members. Of the 10 independent directors, five are women."

 

APP - American Apparel's Dov Charney Fighting Back

(http://www.wwd.com/business-news/human-resources/dov-charney-fighting-back-7754085?module=hp-topstories)

 

  • "A filing with the Securities and Exchange Commission Monday detailing Charney’s position said his termination was 'without merit' and that he 'intends to contest it vigorously.' He is working with Los Angeles law firm Glaser Weil Fink Jacobs Howard Avchen & Shapiro."
  • "After Charney was sidelined — he was technically suspended for 30 days to await termination — he was approached by 'certain people, including stock holders…who expressed support for his continued leadership' of the company, according to the filing."
  • "Charney’s been holding discussions with these people about 'potential changes to the composition of the board and management of [American Apparel].'"

 

UA - Sprint Teams with Samsung, Under Armour and MapMyFitness to Drive Advances in Growing Health and Fitness Technology Market

(http://newsroom.sprint.com/article_display.cfm?article_id=11468)

 

  • "Sprint is stepping up its presence in the growing health and fitness markets, announcing today the launch of an exclusive device from Samsung Telecommunications America and a collaboration with health and fitness market leaders Under Armour and MapMyFitness to offer mobile solutions for today’s active lifestyles."
  • "Sprint will provide convenient mobile access to fitness tracking, educational information, and music, as well as offer applications to help consumers as they exercise, watch what they eat and take better care of themselves."

 

NKE, ADDYY - Wimbledon’s stricter dress code isn’t meshing well with sports brands

(http://blogs.marketwatch.com/behindthestorefront/2014/06/23/wimbledons-stricter-dress-code-isnt-meshing-well-with-sports-brands/)

 

  • "While Wimbledon first stipulated in 1963 that all competitors have to dress 'predominantly in white' on the court, then changed it in 1995 to 'almost entirely in white,' this year the players have been given an even clearer mandate: accessories such as undergarments, headbands, and wristbands are now also included in the mandate."

DUBAI: STOCK MARKET CRASHED

Client Talking Points

INDIA

BSE Sensex +1.4% to +20.9% year-to-date led gainers in Asia overnight; India is doing all the right things (on the margin) from a Hedgeye Macro Playbook perspective – we continue to like it on the long side.

DUBAI

#Crashed, in June. Dubai stock market down another -7-8% this morning puts it -22% for June and while there is no subtle news flow on the why, we think what’s happening there is pretty obvious. Putin’s petrodollars (and his stock market +2.3% this morning) are strengthening as U.S. weakens geopolitically.

GOLD

There was barely a correction after last week’s breakout above @Hedgeye immediate-term TRADE line of $1285/oz and this morning we are seeing what we like to see: follow through. Closing > $1336, Gold can easily re-test its year-to-date highs of $1381ish. The Macro setup is almost perfect for that.

Asset Allocation

CASH 10% US EQUITIES 6%
INTL EQUITIES 15% COMMODITIES 24%
FIXED INCOME 30% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

OC

Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.

LM

Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road

TWEET OF THE DAY

RUSSIA: Putin powers a +2.3% move in the Russian stock market today

@KeithMcCullough 

QUOTE OF THE DAY

“The real test is how you behave when the crowd is roaring the other way.”

-George Goodman

STAT OF THE DAY

Energy (XLE) is up +14.4% year-to-date vs Consumer Discretionary (XLY) down -1% year-to-date, inflation slowing consumption growth.



Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

next