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INITIAL CLAIMS: SPEED BUMP

Takeaway: Today marks the first week of bona fide soft data in a long time. Confidence, meanwhile, remains resurgent.

This morning’s Initial jobless claims data reflected a second week of deterioration for the domestic labor market.  While the broader trend remains healthy and seasonality will continue to build as a tailwind, the recent softness is noteworthy in that there is no discrete, identifiable distortion other than the seasonal volatility that generally characterizes the peri-holiday period.  We wouldn’t read too much into the recent advance in claims, but it is worth a flag.   

 

Confidence, meanwhile, remains resurgent with bloomberg’s weekly read on consumer confidence recapturing the elusive 20-handle as the post-government shutdown hangover in populace sentiment continues to ebb.  We’ll get the final University of Michigan reading on Monday, but the preliminary data showed a positive inflection similar to that observed in the bloomberg survey.   

 

The U.S. dollar has moved in lockstep with monthly confidence over the past year and, now, with the taper announcement on the tape and the dollar recapturing the $80.15 TRADE line, we’re vapidly optimistic we could see a return to sustainable, #StrongDollar led growth into 2014.

 

Below is the breakdown of this morning's claims data from the Hedgeye Financials team along with some sector specific insight.  If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

- Hedgeye Macro

 

 INITIAL CLAIMS: SPEED BUMP - BBER CC 2

 

 INITIAL CLAIMS: SPEED BUMP - USD Pheonix or forlorn 121613

 

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INITIAL CLAIMS: Should We Be Concerned?

The labor data has softened now for two weeks in a row. The first week of weak data (two weeks ago) represented a seasonal mismatch and wasn't anything overly noteworthy. The second week - the most recent week - however, showed a more legitimate soft patch in the data.

 

Normally, we see a surge in claims following black Friday representing the seasonal layoff of retail workers. Then, in the following week we see claims drop sharply. For reference, the average increase in claims from post-Black Friday layoffs over the last six years has been 175,000 (NSA). The subsequent decline in claims has averaged 91,000. That works out to a 52% reduction in the post-black Friday surge. This year, we saw an increase of 147,000 post-black Friday followed by a decline of 48,000, or right around a decline of 1/3 - well below the normal retracement. We'll keep a close eye on the trends into year-end.

 

Separately, with the Fed finally tapering its bond purchases we think it's important to remind investors of the setup going into the new year. Remember that the labor market has a built in tailwind that strengthens steadily from September through February, peaking in February/March and then reversing, and, ultimately, troughing in August/September.

 

This should be supportive of rising rates through 1Q14. We've shown rate correlations across the Financials over the bulk of 2013 and we would expect that the playbook through the next 2-4 months should mirror that. For more information on how to position in that environment, see our note from 11/22/13 entitled #Rates-Rising: A Current Look at Rate Sensitivity Across Financials.

 

The Data

Prior to revision, initial jobless claims rose 11k to 379k from 368k WoW, as the prior week's number was revised up by 1k to 369k.

 

The headline (unrevised) number shows claims were higher by 10k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 13.25k WoW to 342.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.7% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -13.0%

 

 INITIAL CLAIMS: SPEED BUMP - JS 1

 

 INITIAL CLAIMS: SPEED BUMP - JS 2

 

 INITIAL CLAIMS: SPEED BUMP - JS 3

 

 INITIAL CLAIMS: SPEED BUMP - JS 4

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


CCL F4Q CONF CALL NOTES

Cost initiatives and guidance (although timing did help to some extent) for 2014 are encouraging.  As expected, the demand environment remains challenging with 2014 yield guidance 'slightly down', which was below Street expectations.

 

 

CONF CALL 

  • 4Q 
    • Better than expected ticket/onboard (mainly occurred at Carnival Cruise lines: 5 cent impact, lower fuel, favorable FX)
      • Net ticket yields declined due NA brands (-6%, lower yields at premium brands and Carnival)
        • EAA brands: +3% 
      • Net onboard and other
        • EAA brands +2% (increase at Costa offset by declines in other Euro brands), NA brands flat 
      • NCC- higher advertising expense due to timing between 4Q and 1Q 2014
    • Capacity increased 3%
  • Has seen significant recovery in brand perception of Carnival brand from their surveys
  • Costa brand surveys were also very encouraging.  EAA brands (ex Costa) was weak and EAA yields for FY 2013 was -2%
  • Large capacity increase in Caribbean starting in F2Q; still facing ongoing challenging economic environment in Southern Europe
  • For 1H 2014: fleetwide volumes during last 13 weeks running well ahead of prior outpacing capacity at prices that are lower. Despite the recent high volumes, the cumulative bookings for the first half on a fleetwide basis are still behind at lower prices.
  • Expecting lower yields in 1H 2014. North American brands impacted by challenging comps 
  • EAA brands face ongoing economic environment challenges in southern Europe, the loss of the attractive red sea program, and close in bookings curve that is impacting first half.
  • 3Q 2014
    • Fleetwide occupancy is similar to last year while pricing is flat.  Still expect positive yields in 3Q
  • Booking patterns:
    • Caribbean:  behind both on price and occupancy; represents 60% capacity of 1H 2014 and +40% in 3Q of NA brands
    • Alaska: behind on price but well ahead on occu
      • Booking volumes solid
    • European progam for NA brands showing signs of strength, particularly in 3Q where pricing/occupancy up nicely
    • EAA:  Euro program represent 60% of EA capacity; sees sequential improvement in YoY pricing and in each quarter from 1Q to 3Q.  Booking volumes for Euro programs have been nicely higher as well.
  • 2014 cost forecast:  cost per ALBD will be up only slightly
    • Timing of expenses factored into the reduced cost guidance from September's
    • Found ways to do some of vessel enhancement and service thereby reducing drydock days
  • There will be a more efficient Seaborne ship to replace three smaller original ships in 2016
  • Experienced faster recovery for Carnival brand than originally anticipated
  • Cautious on whether current pace of recovery is sustainable

Q & A

  • Some Carnival ships will sail with empty cabins in back half of year but just a couple of points of occu.
  • Costa up double digits in 4Q (we saw this in our pricing survey); other brands down; overall EAA yields up 2%
  • Costa: 2014 pricing is recovering but it is early
  • Cost mgmt initiatives: port and inventory mgmt; less brochures printed-save $$$, will carry forward into 2014
  • 1H 2014:  good bookings at lower prices; however, they remain at lower end or slightly below (couple of % points) historical bookings curve 
  • Costa/Carnival recovery period: 2-3 years 
    • Costa recovery impeded by weak Euro economy; hence, Costa recovery may take longer than the 2-3 years
  • Advertising spend:  invested heavily in Carnival and investing in other brands. Will continue in 1Q. For FY 2014, advertising spend substantially ahead of 2012 and higher than 2013.
  • Capex guidance:  2014 ($2.9 bn), 2015 ($2.8 bn), 2016 ($2.9 bn)
  • 2014 Asia: 5% capacity; yields in Asia a little bit below corporate average. May expand in that region in the future
    • Have sourced 250k passengers. Will source 500k passengers in 2014
  • Long-term 2-3% fuel consumption reduction each year.  4% goal for 2014
  • 1H 2014:  Both quarters need catching up in bookings.
  • 2014 capacity growth:  1.8% (1Q), 4.9% (2Q), 2.5% (3Q), 4.5% (4Q); FY (2.8%)
  • Say lay off other vessels but that will be evaluated on an ongoing basis
  • 2015:  will continue focus on costs
  • Long-term:  expect NCC ex fuel (flat to half of inflation)
  • Every % point in yield equates to 15 cents on EPS
  • 40 cent EPS band - prudent before Wave season
  • 2014 maintenance capex:  $1.4 bn (2014, 2015), $1.0 bn (2016)
  • Costa
    • -15% in 2012
    • +4% in 2013
    • expect continued recovery in 2014
  • Premium brands (Holland/Princess)
    • Europe consumer base weaker
    • Significant supply increase in premium segment
  • Fair to say that more than majority of $265MM higher EICA costs will disappear.  Will discuss in detail in 10K.
  • Overall web bookings higher
  • Marketing campaigns have been helping Carnival
  • 2014 onboard yield: up a little over 1%

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"Playing Lucky" [Unlocked Content]

This note was originally published December 19, 2013 at 08:02 in Morning Newsletter

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“The way I feel about music is that there is no right and wrong. Only true and false.” -Fiona Apple

The big picture

I was dead wrong on the no-taper call yesterday, and (after covering my US Dollar short position within minutes of the decision) was somehow positioned right (8 LONGS, 0 SHORTS). Where I was brought up, being right for the wrong reasons is called luck.

 

True or False: Ben Bernanke did the right thing in tapering yesterday? True. Whether or not his obeying the US 2013 #GrowthAccelerating data on a lag (he’s 3 months late in making a decision he should have made in September) proves to be right is up to history.

 

I think that if most people were intellectually honest about it, they wouldn’t have told you that A) Bernanke was going to taper yesterday AND B) US stocks would rip to all-time highs on that. But they did. That is the only truth that matters this morning.

Macro grind

So what do we do now? Sticking with the process, that’s actually the easiest call to make. We simply go right back to where we were positioned from December 2012-September 2013:

  1. Long Growth (Equities)
  2. Short Gold, Bonds (and Equities that look like Bonds, like MLPs)

Why?

  1. #RatesRising + a USD that isn’t going down in a ball of flames = bad for Gold Bond positions
  2. #Flows (out of Gold Bonds into US Growth Stocks) should dominate well into the new year

That’s why my 1st three moves in #RealTimeAlerts after the taper decision yesterday were:

  1. COVER US Dollar Short
  2. SHORT Pimco’s Total Return Fund (BOND)
  3. SHORT Kinder Morgan (KMI)

It’s one thing to make mistakes in this game. It’s entirely another to make mistake-upon-mistake after making that first mistake. In hockey terms, give away the puck once – feel shame. Give it away again – feel sitting on cold Canadian bench for rest of game.

 

I could have easily given away the puck post taper yesterday buying something like Gold because it was down. It’s down a lot more this morning (Silver -3.9%, Gold -1.1%) and testing its June 27th YTD closing low of $1200/oz.

 

True or false: Gold hates #RatesRising?

  1. US Treasury 10yr Yield 2.88% = +17 bps month-over-month and +112 bps YTD
  2. Gold (started the yr at $1675) = still crashing, -28.3% YTD

Another puck I could have given away would have been trying the long Yen “because everyone is short the Yen.”  

 

True or false: Nikkei loves Burning Yen?

  1. Japanese Yen (vs USD) = crashing, -17% YTD
  2. Nikkei = +1.7% overnight to +54.97% YTD

In other words, as soon as you saw the word “taper” yesterday, you got the Dollar right (up) and that helped you get a lot of other things Global Macro right.

 

True or false: Dollar Up = Emerging Markets Down?

  1. US Dollar (despite being UP now for 1st wk in 6) = +1.1% YTD
  2. MSCI Emerging Markets Index = down -5.9% YTD

Oh, and despite the epic US Equity market rip to all-time highs (SP500 1810 = +26.9% YTD), Emerging Equity markets in Asia were down overnight (India -0.72%, Philippines -0.64%). Turkeys’ stock market is -0.7% this morning too.

 

On the taper news yesterday, Argentina, Chile, and Peru all saw their stock markets close down on the day. “Emerging” commodity countries = #EmergingOutflows.

 

So is it the marketing messages of asset management firms that are perma long Gold, Bonds, and Emerging Markets that are right or wrong in a Dollar Up + #RatesRising environment? Or are the perceptions of their investors simply false?

 

The truth is always in the balance of your account. It’s there, each and every market day, whether you played lucky or not.

  • CASH: 52%
  • US EQUITIES: 12%
  • INTL EQUITIES: 12%
  • COMMODITIES: 0%
  • FIXED INCOME: 0%
  • INTL CURRENCIES: 24%

Our levels

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1791-1820

USD 80.15-81.14

Gold 1200-1237

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

"Playing Lucky" [Unlocked Content] - Chart of the Day


INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT

Takeaway: Today marks the first week of bona fide soft data in a long time. We'll see if this is the start of a new trend through year-end.

Should We Be Concerned?

The labor data has softened now for two weeks in a row. The first week of weak data (two weeks ago) represented a seasonal mismatch and wasn't anything overly noteworthy. The second week - the most recent week - however, showed a more legitimate soft patch in the data. Normally, we see a surge in claims following black Friday representing the seasonal layoff of retail workers. Then, in the following week we see claims drop sharply. For reference, the average increase in claims from post-Black Friday layoffs over the last six years has been 175,000 (NSA). The subsequent decline in claims has averaged 91,000. That works out to a 52% reduction in the post-black Friday surge. This year, we saw an increase of 147,000 post-black Friday followed by a decline of 48,000, or right around a decline of 1/3 - well below the normal retracement. We'll keep a close eye on the trends into year-end.

 

Separately, with the Fed finally tapering its bond purchases we think it's important to remind investors of the setup going into the new year. Remember that the labor market has a built in tailwind that strengthens steadily from September through February, peaking in February/March and then reversing, and, ultimately, troughing in August/September. This should be supportive of rising rates through 1Q14. We've shown rate correlations across the Financials over the bulk of 2013 and we would expect that the playbook through the next 2-4 months should mirror that. For more information on how to position in that environment, see our note from 11/22/13 entitled #Rates-Rising: A Current Look at Rate Sensitivity Across Financials.

 

The Data

Prior to revision, initial jobless claims rose 11k to 379k from 368k WoW, as the prior week's number was revised up by 1k to 369k.

 

The headline (unrevised) number shows claims were higher by 10k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 13.25k WoW to 342.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.7% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -13.0%

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 1

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 2

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 3

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 4

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 5

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 6

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 7

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 8

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 9

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 10

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 11

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 12

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 13

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 19

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 14

 

Yield Spreads

The 2-10 spread rose 1 basis points WoW to 256 bps. 4Q13TD, the 2-10 spread is averaging 238 bps, which is higher by 4 bps relative to 3Q13.

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 15

 

INITIAL CLAIMS: A SPEED BUMP IN THE LABOR MARKET PARKING LOT - 16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


[podcast] mccullough: what do we do now? #BTDB?

Hedgeye CEO Keith McCullough says he was "dead wrong" on yesterday's no-taper call and "lucky" (after covering his US Dollar short position soon after, he was somehow positioned right with 8 LONGS, 0 SHORTS.) So what do we do now? Keith discusses.

 


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