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THE ELUSIVE QUADFECTA: CONSUMER CREDIT GROWTH ACCELERATES IN JUNE

Takeaway: Consumer revolving credit accelerated to +2.5% YoY in June, marking the first 4 mo. streak of significant, positive MoM loan growth since 08

We’ve highlighted the Fed G.19 data the last couple months after the April figures showed the first positive inflection in ~3 yrs as revolving consumer credit balances rose at a month-over-month annualized rate of +12.3%, the fastest rate of growth since 2001.

 

The May numbers subsequently rose at a +2.1% annualized rate, and the June figures released this afternoon showed a more subdued, but still positive, 1.3% MoM annualized increase in credit card loan growth. 

 

Inclusive of the June data, this is the first 4-month streak of significant, positive MoM loan growth since 2008.    

 

The monthly revolving consumer credit data rhymes with the broader cross-category trends in the weekly Fed H.8 release where the slope of growth across total loans, C&I, CRE, and residential real estate all remain positive.   

 

So, as it stands currently, credit trends continue to improve and aggregate personal & disposable income growth is accelerating as the employment base grows alongside some favorable payroll mix and a return to positive growth in government employment (~17% of the NFP labor force).    

 

Whether the conflation of positive labor and credit market trends, the fledgling breakout in the dollar and the fledgling breakdown in commodity inflation can drive a sustainable, late-cycle acceleration in domestic consumerism in the face of negative real wage growth, a discrete slowdown in housing, and an EU/ROW growth deceleration remains to be seen.  

 

Also, with auto loan growth again a principal driver of the gain in non-revolving consumer credit, the ongoing inflation of the emergent bubble that is subprime auto lending deserves another highlight as something to keep on your radar.  

 

 

THE ELUSIVE QUADFECTA: CONSUMER CREDIT GROWTH ACCELERATES IN JUNE - Revolving Credit June MoM

 

THE ELUSIVE QUADFECTA: CONSUMER CREDIT GROWTH ACCELERATES IN JUNE - Revolving Credit June

 

THE ELUSIVE QUADFECTA: CONSUMER CREDIT GROWTH ACCELERATES IN JUNE - Bank Loan Growth

 

 

Christian B. Drake

@HedgeyeUSA


NO ONE EVER WENT BROKE BOOKING GAINS… IN TAIWAN

Takeaway: Early warning signs in the semiconductor space suggest it’s appropriate for investors to rotate out of Taiwan here.

Snapping our immediate-term TRADE line of support recently, the iShares MSCI Taiwan ETF (EWT) is now breaking down alongside what was one of our favorite ways to play our 2Q Macro Theme #StructuralInflation on the long side – semiconductor stocks (SMH). Recall that in our 6/3 research note titled, “BOOKING THE GAIN IN BRAZIL; ROTATING INTO TAIWAN AND BACK TO INDIA”, we preferred Taiwan over most other international equity markets at that time due to its exposure to the “anti-CapEx cycle” (i.e. M&A):

 

  • “It’s worth noting that the Tech sector accounts for a whopping 46% of TAIEX market cap, with semiconductors alone accounting for 23%.”
  • “Not surprisingly, the benchmark Taiwan TAIEX Index has registered a +0.83 correlation with the MSCI World Semiconductors GICS Level 3 Index in the YTD, which is up a bit from the +0.80 correlation registered over the trailing 3Y.”
  • “Indeed, it would seem that getting the semis cycle right is really all investors need to have a handle on to get market beta right for Taiwanese equities.”

 

Now, we are getting increasingly negative on the global semiconductors space amid signs of frothiness throughout the industry. Per a research note from this morning via Hedgeye Semiconductors Sector Head, Craig Berger:

 

  • “We note Atmel's Memory shipments have grew 13% QOQ in 2Q14 and are guided to grow double-digits again in 3Q14.  We have not seen  consecutive double-digit growth quarters in Atmel's memory business even once in the last thirteen years of history (though mid-2009 came close).”
  • “Semiconductor Upcycle now means Modest Downcycle Reset later. In short, when the sector is in the throes of an Upcycle (even a modest one), then there will inevitably be a revenue/earnings estimate reset process that could play out over three to nine months (modest Downcycle).”
  • “Currently, chip customers are feeling more confident about global macro conditions, and are modestly replenishing chip and finished goods inventories to higher levels.”
  • “Now, chip lead-times are starting to expand and supply is tightening, which could either increase in magnitude from here or begin to fizzle out into early 2015.”
  • “Either way, even if there is not 'too much' inventory in the supply chain, some chip firms' shipment levels could be 5%-15% above real end consumption levels.”
  • “This drives chip firms to have to 'reset' estimates at some point in the future to 'normalize' shipments with end consumption levels.”
  • “Conclusion: This Upcycle is getting long in the tooth. Chip stocks have spent 256 weeks in Upcycle Trends versus only 26 weeks in a brief Downcycle (most of 1H11). Only one Upcycle in history has been longer (1 at 272 weeks).”
  • The two most similar (i.e. muted) Downcycles were in 2006 and 2011, lasted 24 weeks and 26 weeks, and with Chip stocks falling by 21% and 32% peak-to-trough, respectively.”

 

CLICK HERE to view a brief, ~7 minute video with Berger and Hedgeye CEO Keith McCullough delving deep into these industry dynamics.

 

***If you’re not yet receiving what some of our customers are already labeling as the best semiconductors research on the Street, please email to learn more.***

 

Jumping back to Taiwan, we see that the island economy is clearly mirroring the semis Upcycle. Specifically, looking to just about every single relevant high-frequency growth data point coming out of Taiwan, we see that economic activity in Taiwan is accelerating on both a sequential and on a multi-duration trending basis!

 

NO ONE EVER WENT BROKE BOOKING GAINS… IN TAIWAN - Taiwan High Frequency GIP Monitor

 

Is this is as good as it gets, however? The market is certainly starting to have that debate.  While our GIP model continues to portend a positive growth outlook for Taiwan here in the third quarter, it is also calling for a sharp deceleration into Quad #3 for the fourth quarter.  

 

NO ONE EVER WENT BROKE BOOKING GAINS… IN TAIWAN - TAIWAN

 

In the context of the aforementioned quantitative signals and this readily identifiable roadblock within our intermediate-term TREND duration, we think it’s best for investors to step aside and book the gain in Taiwan here.

 

In the spirit of keeping score – win, lose or draw (though we tend to avoid the latter two options w/ our country-picking) – the EWT ETF has appreciated +2.2% since our JUN 3 note. That compares to a sample mean of +2% for the 24 country-level ETFs we track across the EM space and a -0.6% decline for the S&P 500 SPDR ETF Trust (SPY). Annualizing those returns would result in a +12.5% gain for the EWT vs. a -3.4% decline for the SPY.

 

#BookingResearchAlpha

 

DD

 

Darius Dale

Associate: Macro Team



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INITIAL CLAIMS - CONTEXT IS KING

Takeaway: Using claims to triangulate where we are in the cycle

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 

 

Context is King

Claims are now running at sub-300k on a rolling SA basis for the second week in a row. Based on the chart below, in the past two instances (1 & 2006-2007) the market went on to advance for 12-18 months after rolling initial claims first dropped below 300k. We're not suggesting that history will repeat exactly; rather, we're just offering this as context.

 

Initial claims are a leading indicator for the economy, whereas the unemployment rate is a lagging indicator. The market is also a leading indicator for the economy. As such, we use claims principally as a leading indicator for the economy and as a coincident indicator for the market. We think that by looking at both the absolute level and the trend (and inflections therein) in claims in real time and evaluating it relative to past cycles we can have a decent bearing on where we are in the current cycle. 

 

INITIAL CLAIMS - CONTEXT IS KING - 20 normal

 

 

The Data

Prior to revision, initial jobless claims fell 13k to 289k from 302k WoW, as the prior week's number was revised up by 1k to 303k.

 

The headline (unrevised) number shows claims were lower by 14k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4k WoW to 293.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -12.1% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -12.6%

 

INITIAL CLAIMS - CONTEXT IS KING - 1 normal

 

INITIAL CLAIMS - CONTEXT IS KING - 2 normal

 

INITIAL CLAIMS - CONTEXT IS KING - 10 normal

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Initial Jobless Claims: Context Is King

Initial jobless claims are now running at sub-300k on a rolling SA (seasonally adjusted) basis for the second week in a row. Based on the chart below, in the past two instances (1999-2000 and 2006-2007) the market went on to advance for 12-18 months after rolling initial claims first dropped below 300k. We're not suggesting that history will repeat exactly; rather, we're just offering this as context.

 

Initial claims are a leading indicator for the economy, whereas the unemployment rate is a lagging indicator. The market is also a leading indicator for the economy. As such, we use claims principally as a leading indicator for the economy and as a coincident indicator for the market.

 

We think that by looking at both the aboslute level and the trend (and inflections therein) in claims in real time and evaluating it relative to past cycles we can have a decent bearing on where we are in the current cycle. 

 

Initial Jobless Claims: Context Is King - chart


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 80.64%
  • SHORT SIGNALS 78.58%
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