Where Real Performance Resides (Hint: It’s Not In US Small Caps)

Takeaway: We remain bullish on India, China and Indonesia.

With the Russell 2000 down -1.2% year-to-date, it’s been a lot easier for small and mid-cap growth investors to stay with long China, India, and Indonesia. They were all up again overnight to +5.7%, +29.7%, and +23.9% year-to-date, respectively.


That’s where the real performance is.


It’s also why you continue to see a higher “International Equities” allocation in our asset allocation model than USA. (Hedgeye macro analyst Darius Dale wrote a related note recently detailing our high conviction. Click here to read.)


Where Real Performance Resides (Hint: It’s Not In US Small Caps) - Russell vs. Asia


Editor's note: This is an excerpt from Hedgeye research.

NAHB - Party Like it's 2005?

Takeaway: Builders are the most excited they've been since Nov 2005, but we're waiting for tomorrow's Starts/Permits data before joining the party.

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.


*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.


NAHB - Party Like it's 2005? - Compendium 091714


Today's Focus: September NAHB HMI (Builder Confidence Survey) & MBA Mortgage Applications


September NAHB HMI (Builder Confidence Survey) 

This month (September), the NAHB’s HMI, which measures builder confidence, rose to 59, a gain of four points from August’s print of 55 (which was not subject to any revision), marking the highest reading since November 2005 and the third month above the improvement demarcation line of 50 on the Index.

  • Sub-Indices:  All 3 sub-indices increased MoM for a 4th consecutive month with Current Sales (+5pts) leading the gain alongside a +2pt rise in 6M Expectations and a +5pt rise in Current Traffic.  
  • Regional: Builder Confidence gained across all regions with the exception of the Midwest which saw a modest sequential decline following the largest MoM increase ever ( +13pts) for the region last month.  The 3-month moving average (the NAHB’s preferred, smoothed view) again improved in September across each regional series.

Confidence vs Actual Construction: Builder confidence and Pending Home Sales have shown some reconvergence in recent months while the divergence between builder sentiment and new single family home construction continues to expand.


Earnings reports and management commentary out of the public homebuilders has been mixed with TOL indicating that strong buyer traffic is seeing relatively low conversion to sales. Meanwhile, LEN numbers showed a solid performance on both current sales and forward outlook. The TOL commentary accords, at least in part, with the disconnect observed between builder sentiment and actual new construction activity.


We’ll get the housing starts/permits data for August tomorrow, but with SF starts middling YTD and permits up just +6K in July, the upside for single family construction over the balance of 2H still appears somewhat constrained.


NAHB Chairman Kevin Kelly had this to say on the September reading: 


“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction.


NAHB's Chief Economist, David Crowe, added this:  


"While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time home buyers. Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor."



NAHB - Party Like it's 2005? - NAHB LT


NAHB - Party Like it's 2005? - NAHB Optimism Spread


NAHB - Party Like it's 2005? - NAHB Regional 2


NAHB - Party Like it's 2005? - NAHB Sentiment vs NHS


NAHB - Party Like it's 2005? - NAHB Sentiment vs PHS


NAHB - Party Like it's 2005? - NAHB Survey Indicators



MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended September 12th.


  • Headline and Purchase Apps re-traced the holiday week decline with the composite index rising +7.8% to 353 from 327 – after falling from 353 to 327 during the week including Labor Day.
  • Purchase Application volume rose  +4.8% sequentially to 169.3 on the index; the 1st rise in three weeks and the highest level since the first week of July.  Purchase activity remains down -10% YoY and is tracking at -6.3% QoQ with the quarterly average holding at the lowest level since 2Q of 1995. 
  • Refi activity rose +10.3% WoW although the YoY rate of improvement deteriorated to -23% from -17% prior as rates on the 30Y FRM rose  a sizeable +9bps WoW to 4.36%


NAHB - Party Like it's 2005? - Purchase Apps LT w summary stats


NAHB - Party Like it's 2005? - Composite Index LT w summary stats


NAHB - Party Like it's 2005? - Purchase   Refi YoY


NAHB - Party Like it's 2005? - Purchase Apps Qtrly


NAHB - Party Like it's 2005? - 30Y FRM



About the NAHB HMI:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The monthly survey has been conducted for 30 years. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. The HMI is a weighted average of separate diffusion indices for these three key single-family series. The HMI can range from 0 to 100, where a value over 50 implies conditions are, on average, improving, a value below 50 implies conditions are worsening, and an index value of 50 indicates that the housing market is neither improving nor worsening.


About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake


Q&A: McCullough Answers Question on Utilities and REITs | $XLU $VNQ

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Cartoon of the Day: Look!

Takeaway: Investors across the globe await the monetary proclamations from our un-elected central planning overlords.

Cartoon of the Day: Look! - Yellen cartoon 09.17.2014NEW

Retail Callouts (9/17): NKE, AdiBok, TGT, JWN, HBC, WMT, AMZN

Takeaway: NKE unveils the Lebron 12 - little new in this release. Hainer feeling the heat at Adi. UPS boosting staff for Holiday demand.

Wednesday (9/17)

  • PIR - Earnings Call: 4:30pm


Thursday (9/18)

  • RAD - Earnings Call: 8:30am







  • "The LEBRON 12 is designed to enhance James’s explosiveness while combining three key benefits: superior cushioning, harnessed support and natural flexibility."


Retail Callouts (9/17): NKE, AdiBok, TGT, JWN, HBC, WMT, AMZN - 9 17 chart1


Takeaway: The Lebron 11 sold about $300mm at retail despite the fact that King James wore the shoes only 35 times during the 2013-14 NBA regular season and playoffs, 36% of the time. The new 12's feature a few surface tweaks, but for the most part look very similar to last year’s model. The one notable addition - hexagonal  Nike Zoom air bags on the sole. Not the type of innovation we are used to seeing from NKE around these releases, which allow the brand to take up AUR because of new technology. The new model will retail for $200, flat when compared to the Lebron 11, after a 10% price hike last year. 


AdiBok - Adidas Shares Jump on Report of Hedge Funds’ Interest in Stakes



  • "Adidas AG rose the most in more than 10 months in Frankfurt trading on a report that hedge funds including Third Point LLC may take a stake and are pushing to remove Chief Executive Officer Herbert Hainer."


Takeaway: Hainer has been feeling the heat since the big guide down at the end of July. The golf business is a big black eye for the CEO, but let’s not forget that NKE has been eating Adi's lunch in in almost every category and geographic region across the globe…including its own back yard. Over the last 6mnths of reported results for each company Adi has grown sales in W. Europe 6%, compare that to Nike at 24%. Not a big shock that investors are calling for Hainer's job given that he has started to divert his attention towards other interests including the role of President and Business Chairman of the Bayern Munich football club (a role he stepped down from on 9/8). That, and the fact that he's been unable to consistently grow the core brand in key markets on a sustainable basis without relying on acquisitions.




TGT, JWN, HBC - Comments on Entering Canada


HBC’s CEO explains why Target botched its Canadian launch—and why Saks will do better



  • "I’m opening up two stores, not 100-and-whatever stores. They paid $1.8-billion for leaseholds, then they paid $10-million per store to fix them up. They had no office, they had no buyers, they had no planners, they had no distribution centre, they had no POS [point-of-sale] system, they had no IT backbone. They created everything from scratch while we’re coming in very quietly opening up two stores with existing infrastructure."


Starting with one store was a good idea: Nordstrom



  • "'It’s been surprising, the amount of work to be done to open in another country. We knew it going in, but it is literally every business function … the complexities of opening, just operationally, have been challenging,' he said."
  • "'We’re opening one store. I feel good about that decision because we can respond to one store and see what happens. We will open our doors and we will look to respond to customer comments right off the bat.'"


NKE - Nike pulls Adrian Peterson merchandise off Twin Cities shelves



  • "Another NFL sponsor clearly is getting uncomfortable with the recent Ray Rice and Adrian Peterson incidents."
  • "This time, it's Nike, which, according to the Associated Press, has pulled Peterson's merchandise off the shelves of its Twin Cities store."


TGT - TargetExpress to open in San Diego



  • "Target plans to open its sixth TargetExpress store, in the South Park area of San Diego, in July 2015."
  • "At approximately 19,000 sq. ft., the store will be about 14% of the size of a standard Target store (135,000 sq, ft.). Similar to other TargetExpress locations, it will offer an edited assortment that is locally relevant."


WMT - Wal-Mart Under Fire by Xinhua for Dismissed China Workers



  • "'Wal-Mart Stores Inc. sent a chilling message to whistle-blowers by firing four Chinese staff who accused it of food-safety violations, and authorities should intervene, a state-media commentary said."
  • "'Relevant authorities need to step in quickly, and not let such suspected acts of revenge be carried out with impunity,' Xinhua reporter Zhang Chen said in a four-sentence post to the official Xinhua News Agency’s microblog.


AMZN - UPS Boosts Seasonal Hiring, Plans for Surge in Deliveries



  • "United Parcel Service Inc. said Tuesday that it plans to hire between 90,000 and 95,000 seasonal employees this year and is taking additional steps to support an expected surge in deliveries during the holiday season."
  • "Last year, the company had initially expected in October to hire 55,000 seasonal workers, but it ended up actually hiring 85,000 for the season."
  • "The logistics company said much of the sharp increase in package deliveries this year will be driven by e-commerce purchases, and the surge will begin in October and continue through January 2015. Last Christmas season, nearly 60% of all U.S. deliveries by UPS were e-commerce packages to consumers, compared with about 40% for all of 2012."


WMT - Wal-Mart Spokesman Quits Over Falsified Resume



  • "On Tuesday, it was learned that Tovar’s departure was precipitated by the fact that he falsified his résumé. Wal-Mart found out that Tovar had never finished school at the University of Delaware, but claimed on his résumé to have earned a bachelor’s degree."


MW - Men's Wearhouse promotes Blake to president



  • "The Men's Wearhouse board of directors has promoted Mary Beth Blake to the position of president and chief merchandising officer. She was previously EVP and chief merchandising officer, and will continue reporting to CEO Doug Ewert."

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