prev

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE?

Takeaway: The labor data is strong, no question, but we're also getting late in the cycle. We reflect on how late in the note below.

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

 

 

You Know, the Jungian Thing

The first chart below summarizes where we are in the labor market from a historical context. Allow me to suggest something akin to the duality of man. On the one hand, we're seemingly in a great place. Claims are near their historic lows at 309k (rolling SA). Look back at the last three periods in time when claims were comparably low. You'd be looking at the periods of December, 2005, April, 1999 and August, 1987. All those periods were auspicious as they were accompanied by a rapidly rising stock market and an ongoing economic expansion. On the other hand, they were also all in relatively close proximity to major market corrections: 2 months away in the case of August, 1987, ~2 years away in December, 2005 and ~1 year away in April, 1999. Such is the dilemma of where we stand today. We're standing on the tracks and we know the train is coming, but we don't know if it's 2 months or 2 years away. #Conundrum.

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 9

 

[HEDGEYE MACRO]:  An alternate approach to the “where are we in the cycle” question is examining how long, after having reached their frictional lower bound, have claims tracked at a level generally considered (by the market) to be “good”.

 

On average, over the last three cycles, claims have held below the 330K level for ~33 months.  The present streak currently stands at 5 months.    

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - JC Duration 2

 

The chart below speaks to just how strong the data is at the moment. By the way, it's important to remember that seasonal auto manufacturing furloughs occur at this point every year, but last year, due to strong demand, they went largely unutilized. Furloughed autoworkers are eligible to file for claims. As such, seeing the NSA Y/Y prints come in as strongly as they are suggests things really are quite good (at the moment).

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 6

 

 

The Data 

Prior to revision, initial jobless claims fell 2k to 302k from 304k WoW, as the prior week's number was revised up by 1k to 305k.

 

The headline (unrevised) number shows claims were lower by 3k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3k WoW to 309k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -11.2% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -11.4%

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 1

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 2

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 

 

 

 


INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE?

Takeaway: The labor data is strong, no question, but we're also getting late in the cycle. We reflect on how late in the note below.

You Know, the Jungian Thing

The first chart below summarizes where we are in the labor market from a historical context. Allow me to suggest something akin to the duality of man. On the one hand, we're seemingly in a great place. Claims are near their historic lows at 309k (rolling SA). Look back at the last three periods in time when claims were comparably low. You'd be looking at the periods of December, 2005, April, 1999 and August, 1987. All those periods were auspicious as they were accompanied by a rapidly rising stock market and an ongoing economic expansion. On the other hand, they were also all in relatively close proximity to major market corrections: 2 months away in the case of August, 1987, ~2 years away in December, 2005 and ~1 year away in April, 1999. Such is the dilemma of where we stand today. We're standing on the tracks and we know the train is coming, but we don't know if it's 2 months or 2 years away. #Conundrum.

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 9

 

The chart below speaks to just how strong the data is at the moment. By the way, it's important to remember that seasonal auto manufacturing furloughs occur at this point every year, but last year, due to strong demand, they went largely unutilized. Furloughed autoworkers are eligible to file for claims. As such, seeing the NSA Y/Y prints come in as strongly as they are suggests things really are quite good (at the moment).

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 6

 

The Data 

Prior to revision, initial jobless claims fell 2k to 302k from 304k WoW, as the prior week's number was revised up by 1k to 305k.

 

The headline (unrevised) number shows claims were lower by 3k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3k WoW to 309k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -11.2% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -11.4%

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 1

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 2

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 3

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 4

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 5

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 7

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 8

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 10

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 11

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 12

 

<chart13>

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 19

 

<chart14>

 

Yield Spreads

The 2-10 spread fell -3 basis points WoW to 205 bps. 3Q14TD, the 2-10 spread is averaging 209 bps, which is lower by -12 bps relative to 2Q14.

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 15

 

INITIAL CLAIMS: WHERE ARE WE IN THE CYCLE? - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 



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.

Bond Yields Down, Russell 2000 Down, Gold Up. Call Us Crazy, But...

Takeaway: From our perch, this all rhymes with slowing growth expectations.

Bond yields down, Russell 2000 down, Gold up...Call us crazy, but in our opinion this all rhymes with slowing growth expectations.

 

For Gold to make a run for its year-to-date highs, we think we need to see a breakout above $1324 – stay tuned.

 

Bond Yields Down, Russell 2000 Down, Gold Up. Call Us Crazy, But...  - gold99

This is a brief excerpt from our morning research.


(LACK OF) STARTS

Takeaway: Builder confidence appears to be decoupling from reality as actual construction activity plunges for the second month in a row.

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.

 

(LACK OF) STARTS - Compendium 071714

 

Today's Focus: May Housing Starts & Permits

The Census Bureau released its monthly Housing Starts & Permits data for June this morning. The big takeaway is this: No Growth. Incidentally, this is the same

takeaway as last month. 

 

This data is a splash of cold water on yesterday's improved HMI reading as the two have historically not exhibited a lead/lag relationship. 

  • Total Starts - Declined -92K MoM (-9.3%), back below the 900K level to 893K with both single and multi-family starts declining MoM. Total Starts for May were revised lower to 985K from 1001K.
  • Single Family - Declined -57K MoM (-9.0%) to +575K while permits increased +16K (+2.6%) sequentially to +631K.  The soft'ish starts number is not particularly surprising given permits have been running below starts YTD.   
  • Multi Family - Starts down for a 2nd straight month, declining -35K MoM (-9.9%) to 318K (from 353K in May and 414K in April).  MF permits declined sequentially as well, down -58K MoM to 332K – the lowest level since August of last year.

 

NAHB HMI vs Starts:  Builder confidence has decoupled from the reality of actual new construction activity the last few months.  As we highlighted yesterday, builder optimism led the upside in the NAHB HMI gain in July with the forward expectations component registering a disproportionate increase.    With permits running largely flat with starts YTD (& declining in the latest month) the upside for starts over 2H appears somewhat constrained and more likely that confidence re-couples to starts than the converse.

 

As a reminder, there are three factors principally responsible for the ongoing weak performance for housing. First, QM rules that took effect early this year are having a suppressing effect on credit availability. Second, institutional investor demand for properties is waning sharply. Third, affordability dynamics have swung sharply; whereas 12-18 months ago there was a strong asymmetry favoring homeownership, today renting vs owning are close to a toss-up.

 

(LACK OF) STARTS - Single Family Starts vs NAHB

 

(LACK OF) STARTS - SF Starte   Permits TTM

 

(LACK OF) STARTS - SF Starte   Permits LT

 

(LACK OF) STARTS - MF Starts   Permits TTM

 

(LACK OF) STARTS - MF Starts   Permits LT

 

(LACK OF) STARTS - Starts TTM

 

(LACK OF) STARTS - Starts LT

 

 

About Housing Starts & Permits:

The US Census Bureau records the number of new housing units that have obtained permits for construction and those that have begun construction. This data includes new buildings intended primarily as residential units. The US Census Bureau defines a start as, “Start of construction occurs when excavation begins for the footings or foundation of a building.” 

 

 

Joshua Steiner, CFA

 

Christian B. Drake


ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks

Takeaway: Despite bond funds continuing to out gain stocks funds in new attracting new capital, muni bonds had their first outflow in over 5 months

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period, aggregate bond funds including both taxable and tax free products netted another $2.7 billion in new investor subscriptions. Conversely, the combined equity mutual fund complex had only a slight rebound in fund flow with $700 million coming into the category. The broad take-away is that the U.S. retail investor has been retrenching for most of the first half of the year (with only one week of outflows in the past 22 weeks in taxable bonds and 25 of 26 weeks of tax-free or muni bond inflows). This compares to over 2 consecutive months of outflows in U.S. stock funds. We are positioned accordingly with this emerging asset allocation having removed T Rowe Price from our Best Ideas list on May 14th (see report here) and are positioned more conservatively with our ongoing Long recommendation of leading fixed income manager Legg Mason (see our LM research here).

 

Total equity mutual funds put up a slight inflow in the most recent 5 day period ending July 9nd with $661 million coming into the all stock category as reported by the Investment Company Institute. The composition of the $661 million subscription continued to be weighted towards international equity funds with $1.7 billion coming into international stock funds which was offset by a $1.0 billion redemption in domestic equity products. This drawdown in domestic equity funds has become an intermediate term trend with now the eleventh consecutive week of outflow in the category. The running year-to-date weekly average for equity fund flow is now a $1.9 billion inflow, which is now below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual fund flows had a decent week of production with the aggregate $2.7 billion that came into the asset class besting the 2014 running year-to-date average inflow of $2.2 billion. The inflow into taxable products of $3.2 billion made it 21 of 22 weeks with positive flow for the category. However municipal bond funds broke their streak of 25 consecutive weeks of inflow with a $482 million outflow. Over the past 5 months over $10.0 billion has flowed back into tax-free or muni products after a significant draw down to end 2013. The 2014 weekly average for fixed income mutual funds now stands at a $2.2 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 

 

ETF results were mixed during the week with inflows into equity funds and outflows in fixed income products. Equity ETFs put up a $2.5 billion subscription, making it 6 of 7 weeks with significant inflows, while fixed income ETFs suffered another outflow of $20 million. The 2014 weekly averages are now a $1.6 billion weekly inflow for equity ETFs and a $824 million weekly inflow for fixed income ETFs. 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $494 million spread for the week ($3.2 billion of total equity inflow versus the $2.7 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $5.8 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart1

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart2

 

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product:

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart3

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart4

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart5

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart6

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart7

 

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds:

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart8

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart9

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $494 million spread for the week ($3.2 billion of total equity inflow versus the $2.7 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $5.8 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

ICI Fund Flow Survey - First Outflow in Municipals in 26 Weeks - ICI chart10 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.32%
  • SHORT SIGNALS 78.48%
next