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[VIDEO] KEITH TALKS MARKETS ON FBN

 

Hedgeye Risk Management CEO Keith McCullough sounds off on rising interest rates, U.S. economic perma-bears, fear mongering and offers up his favorite stock ideas, including his top short idea which he calls the "The Poster Child of MLPs."


UST 2YR: Monster Rip

Takeaway: The 2-year yield has put on a monster rip show in the last few weeks.

As you may have already guessed, I spend more time worrying about the long-end of the yield curve (Ben Bernanke marks the short end to model). But that hasn't stopped the 2-year yield from putting on a monster rip show in the last few weeks to 0.48%.

 

UST 2YR: Monster Rip - 2Y

 

What exactly constitutes a big rip? How about a 60% surge in a month.

 

Look, lots of (most?) people don’t model entropy risk on a percentage basis. We do here at Hedgeye. It works.

 

Got #RatesRising yet?


Initial Claims: Strong Like Bull

Takeaway: The labor market remains strong like bull. Maintain overweight exposure to credit-levered Financials.

Remarkably Consistent

We're beginning to feel like a broken record with our call on initial jobless claims, stating almost every week how the data is improving at an accelerating rate. This week's data again reflects that trend.

 

Nevertheless, we urge investors to continue to care. Why? With the broader market, and the Financials sector alongside it, gripped in uncertainty over whether we're poised for a meaningful correction, we continue to regard the claims data as the strongest indicator supporting our ongoing bullish bias and buy-the-dip view. Regrettably for those waiting patiently, there hasn't really been much of a dip. 

 

Initial Claims: Strong Like Bull - stein1

 

The bottom line is that the labor market is humming along nicely at this point with rolling non-seasonally adjusted (NSA) claims down 11.2% year-over-year (YoY), the fastest rate of improvement since May 2012. Additional anecdotal evidence continues to emerge that at least a portion of the broadening base of employment is a reflection of employers responding to Obamacare. The bottom line, however, is that the labor market tends to be very self-reinforcing. Baring a significant external shock, we see little reason to expect the current trajectory to deviate from its trend.

 

 

The Data

Prior to revision, initial jobless claims fell 8k to 323k from 331k week-over-week (WoW), as the prior week's number was revised up by 1k to 332k.

 

The headline (unrevised) number shows claims were lower by 9k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3k WoW to 328.75k.

 

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 improvement versus the previous week's YoY change of -10.4%


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INITIAL CLAIMS & ISM: EN FUEGO

Conclusion:  The slope in bond yields continues to follow the slope of improvement in the labor market and broader domestic macro data in July/Aug.  Another YTD low in Jobless Claims, another multi-year high in ISM New Orders, and a return to positive labor productivity growth preface tomorrow’s jobs report.   

 

 

INITIAL CLAIMS

Non-seasonally adjusted Claims:  NSA claims registered another new cycle low, and lowest reading since September 2007,  in absolute terms this week at 269K. 

 

The YoY rate of change improved to -13.1% vs. 10.8% (revised) last week with the 4-week rolling average in YoY claims accelerating -80bps to -11.3% this week vs. -10.5% the week prior. 

 

In short, our favored read on the underlying strength in the labor market, continues to register accelerating improvement.     

 

Seasonally adjusted Claims:  Headline, seasonally adjusted initial jobless claims declined 8K WoW to 323K – on par with the lowest print of the year and lowest reading since January 2008.   The 4-week rolling average in claims declined -3K with the YoY and 4wk rolling YoY rates of improvement both accelerating sequentially.   

 

The slope of bond yields continues to follow the slope of improvement in the labor market and slow growth, yield chase assets (see utilities/staples in Sector Divergence Monitor below) continue to come under pressure alongside #RatesRising, an improving growth outlook, and the realities of monetary policy renormalization. 

 

We think the prevailing asset class and sector level performance dynamics (i.e slow growth lower vs high growth higher, Stocks Ups vs. Bonds/Gold Down) continue to extend themselves.

 

INITIAL CLAIMS & ISM: EN FUEGO - NSA Claims 090613

 

INITIAL CLAIMS & ISM: EN FUEGO - SA Claims 090613

 

INITIAL CLAIMS & ISM: EN FUEGO - 10Y vs NSA Claims

 

INITIAL CLAIMS & ISM: EN FUEGO - Subsector Divergence Monitor

 

ISM Non-Manufacturing:  The ISM services data followed yesterday’s manufacturing data higher with the composite index advancing to 58.6 in August from 56.0 in July.  The Business Activity, New Orders, Employment, Deliveries, and Backlog components all strengthened sequentially.   Notably, the best lead indicator within the componentry - New Orders - breached 60 to the upside, registering its strongest reading since February 2011.   

 

On a two month basis, the New Orders reading within both the Manufacturing and Non-Manufacturing Survey’s posted their best advances (outside of the onset of the recovery in mid-2009) since 2001 and 2003, respectively. 

 

On balance, manufacturing, which sat as the domestic macro deadbeat in the March-May period, is showing accelerating improvement with the ISM, PMI, and Fed Regional Survey data all strengthening over the July/Aug period.    

 

INITIAL CLAIMS & ISM: EN FUEGO - ISM Services Table

 

INITIAL CLAIMS & ISM: EN FUEGO - ISM Non mfg new Orders

 

INITIAL CLAIMS & ISM: EN FUEGO - New Orders 2M Change

 

Labor Productivity:  Meanwhile, the final labor productivity data for 2Q13 came in at +2.4% after a two quarter stretch in negative territory.  Nothing particularly investable here, but nice to see a return to positive growth >2%.  Longer-term, and in context of the Labor Market, with demographics and (potentially) other structural headwinds creating secular pressure on domestic labor supply, productivity gains will sit as an increasingly important driver of real output growth.

 

INITIAL CLAIMS & ISM: EN FUEGO - Labor Productivity

 

 

Christian B. Drake

Senior Analyst 


HEI vs. HEI/A: Taking the Win

Taking a Quick Win

 

We put out a note here suggesting a short HEI, long HEI/A pair.  At the time, the HEI premium was abnormally large and the extra votes for the common shares at Heico do not have much value for the average shareholder.  The HEI premium has dropped about 12% since our 8/27/13 note, which is an excellent annualized return for a well matched pair.  If readers have an interest in these kinds of trades, please ping us for background.  There is no shame in generating some alpha the easy way.

 

HEI vs. HEI/A:  Taking the Win - hei 3

 

 

 

 

 

Jay Van Sciver, CFA

Managing Director


HEDGEYE RISK MANAGEMENT
111 Whitney Avenue

New Haven, CT 06510


 


INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED

Takeaway: The labor market remains strong like bull. Maintain overweight exposure to credit-levered Financials.

Remarkably Consistent

We're beginning to feel like a broken record with our call on initial jobless claims, stating almost every week how the data is improving at an accelerating rate. This week's data again reflects that trend. Nevertheless, we urge investors to continue to care. Why? With the broader market, and the Financials sector alongside it, gripped in uncertainty over whether we're poised for a meaningful correction, we continue to regard the claims data as the strongest indicator supporting our ongoing bullish bias and buy-the-dip view. Regrettably for those waiting patiently, there hasn't really been much of a dip. 

 

The bottom line is that the labor market is humming along nicely at this point with rolling NSA claims down 11.2% Y/Y, the fastest rate of improvement since May, 2012. Additional anecdotal evidence continues to emerge that at least a portion of the broadening base of employment is a reflection of employers responding to Obamacare. The bottom line, however, is that the labor market tends to be very self-reinforcing. Baring a significant external shock, we see little reason to expect the current trajectory to deviate from its trend.

 

As we've stated previously, we continue to think that credit-levered financials remain the best plays amid an accelerating rate of improvement in employment. Two of our favorite ideas on this theme remain Capital One (COF) and Bank of America (BAC).

 

The Data

Prior to revision, initial jobless claims fell 8k to 323k from 331k WoW, as the prior week's number was revised up by 1k to 332k.

 

The headline (unrevised) number shows claims were lower by 9k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3k WoW to 328.75k.

 

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 improvement versus the previous week's YoY change of -10.4%

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 1

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 2

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 3

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 4

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 5

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 6

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 7

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 8

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 9

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 10

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 11

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 12

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 13

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 19

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 14

 

Yield Spreads

The 2-10 spread rose 7 basis points WoW to 243 bps. 3Q13TD, the 2-10 spread is averaging 231 bps, which is higher by 61 bps relative to 2Q13.

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 15

 

INITIAL CLAIMS: SOMETIMES BROKEN RECORDS SHOULD STILL BE PLAYED - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

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