Takeaway: This week we take a step back and consider where we are in the cycle.
Sizing up the Cycle
There's not too much incremental in this week's labor market report, so rather than make something out of nothing from the data, we'll try and offer a bit of context on where we are in the cycle. The trendline rate of improvement suggests that the year-over-year change in rolling NSA claims should converge to zero sometime in the late-April/early-May time period as the chart below shows. Historically, that "zero convergence" has marked the metaphorical late innings of the economic expansion. Consider the last two cycles. Progress converged to zero around December 2006 and April 1999. The expansion persisted for some time thereafter, and equities continued to rise, but both were indications that the cycle was nearing the end of its expansion - arguably fueled by late-stage rotation into equities by retail investment. We don't want to imply that we can pin the tail on the donkey perfectly with this data series, but it has, in the past, been a useful leading indicator and we expect it will again serve as such in this current cycle.
The 2-10 spread fell -1 basis points WoW to 237 bps. 1Q14TD, the 2-10 spread is averaging 242 bps, which is higher by 1 bps relative to 4Q13.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
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New Jersey just banned automaker Tesla from selling cars directly to consumers in the Garden State, becoming the third, following Arizona and Texas, to impose such restrictions on the company.
Takeaway: We are hosting a thought leadership & investing discussion with Prof Laurence Smith today at 1pm. The dial-in & call details are below
"Prediction is very difficult. Especially about the future"
You are invited to join Hedgeye's Macro Team and Director of Research Daryl Jones for a special thought leadership and investing discussion with Laurence C. Smith, Professor and Chair of Geography and Professor of Earth & Space Sciences at UCLA and author of THE WORLD IN 2050.
Natural resource demand, population demographics, economic globalization and climate change will be the ascendant, global forces shaping civilization over the next half century.
We will explore the implications of these emerging dynamics, the challenges for governments and society and prospective investment opportunities born out of a sweeping shift in the distribution of people and power.
The call will be held on Today, March 13th at 1:00pm EST.
ABOUT PROFESSOR LAURENCE C. SMITH
Dr. Laurence C. Smith is Professor and Chair of Geography and Professor of Earth & Space Sciences at UCLA. His research includes topics of Arctic climate change, hydrology, carbon cycles and satellite remote sensing. He has published over 70 peer-reviewed articles including in the journals Science, Nature, and PNAS and won more than $7.7M in research funding from the National Science Foundation and NASA. In 2006 he was named a Guggenheim Fellow by the John S. Guggenheim Foundation and in 2007 his work appeared prominently in the Fourth Assessment Report of the United Nations' Intergovernmental Panel on Climate Change (IPCC). He is currently serving on steering committees for the National Research Council, NASA, and the World Economic Forum. He receives frequent requests to deliver keynotes at public and private speaking events, and in 2012 and 2014 was an invited speaker to the World Economic Forum in Davos.
His general-audience book THE WORLD IN 2050: Four Forces Shaping Civilization's Northern Future (Plume: New York, 2011; U.K. edition titled THE NEW NORTH, Profile: London, 2011 with translations in 14 languages) synthesizing cross-cutting trends in natural resource demand, population demographics, economic globalization, and climate change with particular emphasis on northern countries was winner of the Walter P. Kistler Book Award and a NATURE Editor's Pick of 2012. His work has received coverage in The Wall Street Journal, The Economist, The Los Angeles Times, The Washington Post, The Globe and Mail, The Financial Times, Discover Magazine, NPR, CBC Radio, BBC and others.
Editor's Note: This is a complimentary research note from Hedgeye Analyst Matthew Hedrick published on March 10, 2014 at 12:00 PM.
Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor". If you'd like to receive the work of the Financials team or request a trial please email firstname.lastname@example.org. And, for more information on our services, click here.
European Financial CDS - The big mover in European swaps last week was Sberbank of Russia, which widened 72 bps to 286 bps from 214 bps. Russia's largest bank has often been a good indicator on geopolitical as well as commodity pressures. Elsewhere across Europe, the Financials were much more sanguine with broad-based improvement.
Sovereign CDS – Sovereign swaps were tighter across the globe last week with the sole exception of the US, where swaps were unchanged at 30 bps. Europe put up broad-based improvement in spite of turmoil in peripheral Ukraine.
Euribor-OIS Spread – The Euribor-OIS spread tightened by 3 bps to 11 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk.
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