prev

[video] Hedge to Hedge: Keith Talks to Lucerne Capital

Hedge to Hedge, a new series on HedgeyeTV where CEO Keith McCullough interviews a top hedge fund manager, debuts with Pieter Taselaar, founder of European long/short equity fund Lucerne Capital.


INITIAL CLAIMS: TOUGH TO READ

Takeaway: Our labor market compass is currently impaired due to multiple distortions in our preferred labor market data series.

INITIAL CLAIMS: TOUGH TO READ - tyu7

Tea Leaves Tough To Read At the Moment

The initial jobless claims data this morning was good from a reported standpoint. Normally, we like to see through the reported seasonally adjusted (SA) numbers by looking at the year-over-year (Y/Y) trend in non seasonally adjusted (NSA) claims. Unfortunately, the distortions caused by Hurricane Sandy last year are reducing our precision in doing so.

 

Our best estimate is that the Y/Y trend is down -7.7%, which is a modest deceleration from our estimate of -8.9% improvement in the prior week, but still in line with the longer-term trend of accelerating improvement. The SA data is likely the more informative measure here, in spite of the known distortions. The data showed a significant week-over-week improvement, but here again that number was likely clouded by the Veteran's Day holiday last week, which has distorted the data series in the past.

 

Regrettably, it's hard to say with any good certainty whether the labor market inflected positively or negatively last week, though the SA numbers and our interpolated (Sandy-adjusted) NSA numbers suggest the trend of improvement that's been in place largely remained in place. The Sandy distortion should persist for another 2-3 weeks.

The Nuts & Bolts

Prior to revision, initial jobless claims fell 16,000 to 323,000 from 339K WoW, as the prior week's number was revised up by 5K to 344K.

 

The headline (unrevised) number shows claims were lower by 21k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.75k WoW to 338.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -15.3% lower YoY, which is a sequential improvement versus the previous week's YoY change of -12.9%

 

INITIAL CLAIMS: TOUGH TO READ - stein1

 

INITIAL CLAIMS: TOUGH TO READ - stein2

 

Click here to subscribe to Hedgeye research.


Housing Watt(age)

Takeaway: Mel Watt is bullish for housing, big banks and mortgage insurers.

(Editor's note: Hedgeye Financials Sector Head Josh Steiner responds below to some big news out of Washington.)

 

Housing Watt(age) - und55

Senator Harry Reid (D-NV) just threw down the gauntlet and went with the nuclear option. He’s rewritten the rules to prevent filibustering on all Presidential nominees aside from Supreme Court Justices.

 

The biggest takeaway here is the potential for a Lazarus-like rise of Mel Watt to potentially head FHFA (the overseer of Fannie and Freddie.) As a reminder, if Watt gets confirmed, which it now looks like he can/will, it would be very good for the following stocks: MTG, RDN, BAC, WFC, C. It would also be very good for housing as an asset class.

 

Here’s an excerpt in a research note we wrote back when Watt’s candidacy first surfaced.

Another Positive Catalyst - Big Banks, Mortgage Insurers

It's being reported this morning that President Obama is likely to nominate Congressman Mel Watt (D-NC) to be the new head of FHFA, replacing current director Ed DeMarco. While it remains to be seen whether Watt can be confirmed, we've been clear that DeMarco's eventual replacement will be a positive catalyst for housing, big banks and mortgage insurers. DeMarco has opposed underwater principal forgiveness for GSE borrowers, a stance we agree with as taxpayers.

 

That said, it's clear that if a new director were to green light underwater principal forgiveness it would represent a transfer payment from taxpayers to large banks and mortgage insurers. Large banks have large second lien portfolios that would be in far better shape if the default probabilities on the first liens were improved. Based on the administration's history, we think it's unlikely that the banks would be compelled to offer comparable forgiveness on the seconds. The same logic is even more applicable to the mortgage insurers. Reducing first lien principal is a huge boon for MIs with legacy GSE exposures. MTG & RDN's frequency and severity profiles would improve significantly if Watt is confirmed. 

 

This is a free sample of Hedgeye research. For more information on how to subscribe click here

 

 


 


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS

Takeaway: Our labor market compass is currently impaired due to multiple distortions in our preferred labor market data series.

The Tea Leaves Are Tough To Read At the Moment

The initial jobless claims data this morning was good from a reported standpoint. Normally we like to see through the reported SA numbers by looking at the Y/Y trend in NSA claims, but unfortunately the distortions caused by Hurricane Sandy last year are reducing our precision in doing so. Our best estimate is that the Y/Y trend is down -7.7%, which is a modest deceleration from our estimate of -8.9% improvement in the prior week, but still in line with the longer-term trend of accelerating improvement. The SA data is likely the more informative measure here, in spite of the known distortions. The data showed a significant W/W improvement, but here again that number was likely clouded by the Veteran's Day holiday last week, which has distorted the data series in the past. Regrettably, it's hard to say with any good certainty whether the labor market inflected positively or negatively last week, though the SA numbers and our interpolated (Sandy-adjusted) NSA numbers suggest the trend of improvement that's been in place largely remained in place. The Sandy distortion should persist for another 2-3 weeks.

 

The Nuts & Bolts

Prior to revision, initial jobless claims fell 16k to 323k from 339k WoW, as the prior week's number was revised up by 5k to 344k.

 

The headline (unrevised) number shows claims were lower by 21k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -6.75k WoW to 338.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -15.3% lower YoY, which is a sequential improvement versus the previous week's YoY change of -12.9%

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 1

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 2

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 3

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 4

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 5

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 6

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 7

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 8

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 9

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 10

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 11

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 12

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 13

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 19

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 14

 

Yield Spreads

The 2-10 spread rose 13 basis points WoW to 252 bps. 4Q13TD, the 2-10 spread is averaging 232 bps, which is lower by 2 bps relative to 3Q13.

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 15

 

INITIAL CLAIMS: HOLIDAYS AND HURRICANES MAKE FOR DIFFICULT ANALYSIS - 16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 



PODCAST: McCullough: live from las vegas

Hedgeye CEO Keith McCullough weighs in from Caesars Palace with his latest take on the market, Fed and economy before speaking at the Traders Expo later this morning. According to Keith, it's Buy-The-Damn-Bubble (for now).

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

next