prev

Express & Courier Services Q&A

Today we held a call for our subscribers with Industrials Sector Head Jay Van Sciver focusing on the express and courier services sub-industry that includes FedEx, UPS, DHL, etc.. The Black Book call focused on everything from cyclical drivers and long-term industry trends to industry structure and valuations.

 

We’re pleased to present audio from the question and answer portion of the call, which deals with the UPS/TNT merger, FedEx market share in Europe and other topics related to the industry. We've posted the audio below for your enjoyment.

 

 


My Business

This note was originally published November 08, 2012 at 07:34 in Early Look

“My business is making things.”

-William S. Knudsen, May 28, 1940

 

That’s a quote from one of America’s finest immigrant business men during a time in this country where business builders and innovators built your military and economy, not politicians. It comes from a book that I started reading as I saw the election results roll in – Freedom’s Forge: “How American Business Produced Victory in World War II.”

 

Election Day 2012 was the 5 year-anniversary of building My Business. I am not in the business of producing a racial, gender, or class war in this country. I am an immigrant who is in the business of manufacturing innovative research and risk management ideas.

 

I didn’t ask for a bailout in 2008, and I’m not begging for a solution to a #FiscalCliff situation that the beggars themselves perpetuated. My Business is to fight the winds of government intervention in my life. My Business is to stand up and fight for the core values of a liberal – equality and liberty.

 

Back to the Global Macro Grind

 

How has My Business thrived during one of the worst secular declines in Wall Street trading commissions on record? First, I don’t have a trading desk. More importantly, I started from a place that more should have the opportunity to rise up from – getting fired.

 

The problem with both our government and many of my sell-side competitors that they’ve bailed out (and paid) is that they get re-hired to do more of what has not worked.

 

Every mistake I make, either in building My Business or in research ideas, can and should hurt me. I need to wake-up every morning, lick the blood off my paws, and do whatever I can to make up for my mistakes. There is responsibility in recommendation.

 

To review where we haven’t made mistakes in Q4 of 2012, here are our Top 3 Hedgeye Global Macro Themes:

  1. Earnings Slowing (worst revenue and EPS slowdown since 2008)
  2. Bubble #3 (Commodities down -9.3% from Bernanke’s September 14th Top
  3. Keynesian Cliff (political gridlock perpetuated by the bubble in US politics and the media that supports it)

My Business only works if I have a great team. While I may personally make a lot of short-term mistakes, I think my research and operating team does a great job getting the intermediate-term TRENDS and TAILS right. If they didn’t, we’d fail.

 

I can’t tell you how rewarding it was to walk into one of the world’s biggest bond manager offices on Election Day and have him tell us that our #GrowthSlowing call in 2012 has helped him buy every dip and have a great year.

 

That, of course, may sound a little odd to the Equity only clients we have. But, really, that’s the point about what we do. Multi-factor, Multi-Duration Risk Management, across Global Macro Asset Classes.

 

Yesterday’s down move in the US stock market wasn’t about Germany. It wasn’t about the #KeynesianCliff either. It was about everything that’s been coming to a boil in the US stock market in 2012 as our economic and fiscal reality disconnected from it.

 

Blow-up days (biggest down day since June 1st, 2012 of -2.46% SP500) are processes, not points. If you don’t think people who chased the top in commodities in September have been blowing up, think again:

  1. CRB Index -9.2%
  2. Oil (WTIC) -14.7%
  3. Copper -10.6%
  4. Gold -3.2%

Gold isn’t blowing up. But it’s not going up anymore after 2 of the most bearish macro events in US history for the US Dollar either:

  1. Bernanke Printing to Infinity & Beyond
  2. Obama getting re-elected

That last point isn’t a political point. It’s a fact. You can’t say Obama has been great for commodity and stock inflation since 2009 and not, at the same time, acknowledge the loose fiscal and monetary policies that Debauched The Dollar all the while.

 

This isn’t new. Neither is it an Obama or a Democrat thing. Both Nixon/Carter were as bearish for the US Dollar as Bush/Obama have been. Why? Because both Democrats and Republicans went all-in Keynesian in both periods. And it didn’t work. Romney being advised by a hard core Keynesian (Glenn Hubbard) on the key topic of the debate didn’t work either.

 

What could work – and God help us all if he doesn’t get this – is Obama reaching across the aisle to people like you and me; people running small businesses who have their costs and taxes rising; people who have to meet a payroll before they can start hiring again; people who really want to see Obama succeed inasmuch as patriot Democrat and Republicans wanted Reagan and Clinton to.

 

You can judge us and you can demagogue us, but you cannot fire us. After all, we are The People too.

 

Our immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1701-1733, $105.46-108.67, $80.22-80.98, $1.27-1.29, 1.64-1.72%, and 1391-1414, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

My Business - Chart of the Day

 

My Business - Virtual Portfolio


INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS?

Takeaway: We continue to expect seasonality tailwinds through February, but are we also seeing some early signs of trouble in the real labor market?

Seasonally-adjusted vs. Non-seasonally-adjusted

Seasonally-adjusted initial jobless claims fell by 8k last week to 355k. There was no revision to the prior week's data. On a 4-week rolling basis, claims rose 3.25k to 371k. We know that last week's print was affected by Hurricane Sandy, but based on comments from Labor Department officials, we don't know whether the affect was positive or negative. Some states saw an increase in claims because Sandy left them out of work, while in other states there was such widespread damage that it inhibited people's ability to file for new claims.

 

The non-seasonally adjusted data would be subject to the same Sandy distortion. This week's non-seasonally adjusted claims were higher by 15k. We like to look at the YoY change in rolling NSA claims for a more accurate read on the trends. This week that YoY improvement slowed to -6.9% from the prior two readings of -8.8% and -9.1%. This slowdown is worth keeping an eye on, as it may be an early indication that the real labor market is starting to show signs of weakening. However, we would emphasize that the distortions from Sandy have us cautious about putting too much emphasis on the numbers at this time.

 

On a seasonally-adjusted basis, we expect to see claims continue to benefit from a seasonality tailwind through February, consistent with the last three years. We illustrate these various dynamics in the charts below.

 

It's also worth briefly noting that strength in last month's non-farm payroll report is a statistical aberration. We note the difference in the slope of this year vs the past three. While it's difficult to forecast any one data month accurately, we would think it quite likely that the November non-farm payroll number is down MoM vs. October.

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 1

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 2

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 3

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 4

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 5

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 6

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 7

 

In the chart below we're profiling the YoY change in rolling NSA initial jobless claims series. Note the similarity of the slope of the trendline from last year vs. this year, and note the upward move of the last data point well above the trendline. While there have been comparable moves earlier this year, they were generally in response to aberrations in the year-earlier data, whereas this week's move is against a relatively normalized baseline.

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 8

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 9

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 10 

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 11

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 12

 

Joshua Steiner, CFA

 

Robert Belsky


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.

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS?

Takeaway: We continue to expect seasonality tailwinds through February, but are we also seeing some early signs of trouble in the real labor market?

Seasonally-adjusted vs. Non-seasonally-adjusted

Seasonally-adjusted initial jobless claims fell by 8k last week to 355k. There was no revision to the prior week's data. On a 4-week rolling basis, claims rose 3.25k to 371k. We know that last week's print was affected by Hurricane Sandy, but based on comments from Labor Department officials, we don't know whether the affect was positive or negative. Some states saw an increase in claims because Sandy left them out of work, while in other states there was such widespread damage that it inhibited people's ability to file for new claims.

 

The non-seasonally adjusted data would be subject to the same Sandy distortion. This week's non-seasonally adjusted claims were higher by 15k. We like to look at the YoY change in rolling NSA claims for a more accurate read on the trends. This week that YoY improvement slowed to -6.9% from the prior two readings of -8.8% and -9.1%. This slowdown is worth keeping an eye on, as it may be an early indication that the real labor market is starting to show signs of weakening. However, we would emphasize that the distortions from Sandy have us cautious about putting too much emphasis on the numbers at this time.

 

On a seasonally-adjusted basis, we expect to see claims continue to benefit from a seasonality tailwind through February, consistent with the last three years. We illustrate these various dynamics in the charts below.

 

It's also worth briefly noting that strength in last month's non-farm payroll report is a statistical aberration. We note the difference in the slope of this year vs the past three. While it's difficult to forecast any one data month accurately, we would think it quite likely that the November non-farm payroll number is down MoM vs. October.

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Seasonality

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - NFP

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Raw

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - rolling 2

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - NSA

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Rolling NSA

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - NSA claims YoY

 

In the chart below we're profiling the YoY change in rolling NSA initial jobless claims series. Note the similarity of the slope of the trendline from last year vs. this year, and note the upward move of the last data point well above the trendline. While there have been comparable moves earlier this year, they were generally in response to aberrations in the year-earlier data, whereas this week's move is against a relatively normalized baseline.

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 52 week nsa pct chg

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - recessions

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - rolling linear

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - S P

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Fed and Claims

 

Yield Spreads

The 2-10 spread fell 4.5 bps WoW to 137 bps. So far 4QTD, the 2-10 spread is averaging 1.45%, which is up 8 bps relative to 3Q12.  

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 2 10

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - 2 10 QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over multiple durations. 

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Subsector Performance

 

INITIAL JOBLESS CLAIMS: SANDY DISTORTS, BUT ARE WE SEEING EARLY SIGNS OF LABOR MKT WEAKNESS? - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 


November ECB Presser: No Surprises

Takeaway: OMTs still on hold; nothing new from Draghi

Positions in Europe: Long German Bonds (BUNL)

 

After ECB President Mario Draghi made his big central bank splash in September by introducing the Outright Monetary Transactions (OMTs) program to buy “unlimited” sovereign bonds of Eurozone members at the Bank’s discretion, little has been indicated about its use. And today’s conference provided no further color. 

 

There were no major changes to the economic outlook versus the October meeting. In December, the Bank will release new economic projections. Here we think GDP, in particular, will be revised lower, in step with the European Commission’s autumn Eurozone growth projections released yesterday: -0.4% in 2012; -0.1% in 2013; and +1.4% in 2014.

 

You can find Draghi’s Introductory Statements to the press conference related to inflation, growth and monetary outlook here.

 

The ECB governing council decided that the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively.

 

November ECB Presser: No Surprises - 22. rates

 

The Q&A was filled with questions on if and when Spain should ask for a bailout and how the OMTs could be coordinated with such an announcement. Draghi was once again tight lipped on both fronts, saying that it’s up to the individual Eurozone governments to request a bailout and that the Bank stands ready to use OMTs (of course under conditional requirements).

 

Overall, Draghi once again demonstrated a comfortable position with the sheer announcement of the OMTs program to reduce risk across the region. While peripheral yields have come in over recent weeks versus summer highs, we still see broader risks from the sovereigns and banks of Spain, Italy and France and view the weak credit lines to households and corporations as evidence of a very clogged credit environment that should prolong a return to real growth.

 

November ECB Presser: No Surprises - 22. loans

 

Matthew Hedrick

Senior Analyst


MACY'S: More Downside Than Upside

We’re seeing more downside in Macy’s (M) than upside these days. The company is comping well right now thanks to the success of My Macy’s and the Millennial Stores. The stock is trading at 5.5x EBITDA today but could be seen as trading at 8.5x earnings if you factor in things like gross margin leverage. Would you really pay 8.5x/5.5x for a department store stock assuming that everything goes according to plan without any hiccups? That’s a risky bet considering that no one can keep comping up forever and JCPenney (JCP) is a credible threat to Macy’s. Hence, we’re increasingly bearish on the stock moving forward in Q4.

 

MACY'S: More Downside Than Upside - m2 normal

 

From Retail Sector Head Brian McGough:

 

This a business that has no square footage growth, no ‘birthright to comp’ in its core, struggles to consistently earn its cost of capital (what happens when lease accounting rules change and M has to account for its property?), and has zero competitive advantage in the core area that will be driving incremental consumer purchases for generations to come – dot.com.”


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.

next