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INVITE | Are Global Central Banks Out of Bullets?

INVITE | Are Global Central Banks Out of Bullets? - HE M centralbanks

 

The Hedgeye Macro Team, led by CEO Keith McCullough, will be hosting a conference call on Tuesday November 11th  at 11:00am EST featuring Professor John B. Taylor of Stanford University.

 

Professor Taylor is a highly regarded scholar known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. In the call entitled, Are Global Central Banks Out of Bullets?, Professor Taylor will discuss his view of global monetary policy and where it goes from here.

 

KEY TOPICS WILL FOCUS ON

  • Assessment of monetary policy over the last five years.  What has worked and what hasn’t?
  • In light of recent moves by the ECB and BOJ, what will the Fed do next? And what can any of the central banks do if current policies remain ineffective?
  • While the Presidential election is two years away, will the nature of the Fed and its policy change under Republican leadership?
  • Where is the U.S. economy now and how will that impact Fed decision making?
  • An update on emerging market policy based on Professor Taylor’s recent visits to various emerging markets
  • Looking forward, what can the Fed due to regain its credibility over the long run?

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 855296#
  • Materials: CLICK HERE (The slides will be available approximately one hour prior to the start of the call)

Email for more information

 

 

ABOUT JOHN TAYLOR

  • Currently a Professor of Economics at Stanford University and a Senior Fellow in Economics at the Hoover Institution
  • Formerly served on the President's Council of Economic Advisers and as a member of the Congressional Budget Office's Panel of Economic Advisers
  • Served as Under Secretary of Treasury for International Affairs from 2001- 2005
  • Oversight of the International Monetary Fund and the World Bank
  • Responsible for coordinating financial policy with the G-7 countries
  • Accredited author, his latest the winner of the 2012 Hayek Prize, entitled: "First Principles: Five Keys to Restoring Americas' Prosperity"
  • Received numerous awards for his work as a researcher, public servant, and teacher
    • Awarded the Alexander Hamilton Award for his overall leadership at the U.S. Treasury, the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis   

Siren Song: October Employment

Takeaway: Below is an excerpt from an institutional macro note published this afternoon about today's unemployment report.

Relax, Bro!   Its easy to go full myopia on Jobs Friday.  I try my best to take a detached view of the mania. 

 

October payrolls, with a net gain of +214K, was disappointing both vs. consensus expectations and in the context of very strong Initial claims and employment survey indices (ADP, ISM, etc).  

 

Does a sequential slowdown in NFP signal a negative inflection in the domestic labor market – particularly given a negative birth-death drag, squirrely seasonals, a hard comp, declining slack and improving household survey metrics?  

 

I don’t know, but that feels like a stretched read-through on a single month of data.  

 

However, remaining willfully blind to the reality that we are late cycle and cresting from a fundamental perspective (alongside an ROW slowdown) feels equally myopic.   

 

Siren Song: October Employment - 1

 

Thinking like a Fed Head:   The prevailing view form a policy makers perspective is probably something akin to the following:

 

Payroll gains remain >200K and the trailing averages remain strong and the unemployment rate continues to decline (for mixed reasons) as do broader measures of labor slack.

 

Employment growth in the 20-35 YOA bucket is accelerating and the here-to mired 45-54 YOA bucket has had its first 4-month string of positive employment growth in the post-recession period. 

 

Wage Inflation remains stubbornly stagnant but that's trend consistent and should improve as we move incrementally towards constrained capacity and reduced labor supply.  At any rate, aggregate disposable personal income growth is accelerating and remains at post-recession highs currently. 

 

All-in, the October payroll report (in isolation) = status quo for the current policy course.  

 

Siren Song: October Employment - 2

 

Siren Song: October Employment - 3

 

 

 

 


SIREN SONG: OCTOBER EMPLOYMENT

Relax, Bro!   Its easy to go full myopia on Jobs Friday.  I try my best to take a detached view of the mania. 

 

October payrolls, with a net gain of +214K, was disappointing both vs. consensus expectations and in the context of very strong Initial claims and employment survey indices (ADP, ISM, etc).  

 

Does a sequential slowdown in NFP signal a negative inflection in the domestic labor market – particularly given a negative birth-death drag, squirrely seasonals, a hard comp, declining slack and improving household survey metrics?  

 

I don’t know, but that feels like a stretched read-through on a single month of data.  

 

However, remaining willfully blind to the reality that we are late cycle and cresting from a fundamental perspective (alongside an ROW slowdown) feels equally myopic.   

 

SIREN SONG: OCTOBER EMPLOYMENT - GDP Historical Post recession GDP progression

 

Thinking like a Fed Head:   The prevailing view form a policy makers perspective is probably something akin to the following:

 

Payroll gains remain >200K and the trailing averages remain strong and the unemployment rate continues to decline (for mixed reasons) as do broader measures of labor slack.

 

Employment growth in the 20-35 YOA bucket is accelerating and the here-to mired 45-54 YOA bucket has had its first 4-month string of positive employment growth in the post-recession period. 

 

Wage Inflation remains stubbornly stagnant but that's trend consistent and should improve as we move incrementally towards constrained capacity and reduced labor supply.  At any rate, aggregate disposable personal income growth is accelerating and remains at post-recession highs currently. 

 

All-in, the October payroll report (in isolation) = status quo for the current policy course.  

 

SIREN SONG: OCTOBER EMPLOYMENT - U 6 Unemployment Rate

 

SIREN SONG: OCTOBER EMPLOYMENT - Saalry   Wage Income Private   Total

 

Thinking like a Cyclical Investor:  Thus far, the domestic labor market data has indeed been an insular island of strength amidst a receding sea of global growth and inflation expectations.   Capacity for consumption growth has improved alongside accelerating income although the ongoing rise in the savings rate has muted the translation to actual household spending growth. 

 

With XLY (consumer discretionary) up just 1.69% YTD  (vs. +22%/21% for XLV/U) and taking the penultimate position in Sector SPDR performance, that improving, under-the-hood fundamental reality hasn’t gotten anyone paid or served as a catalyst of consequence.   

 

We are now 65 months into the current expansion (against a mean duration of expansion of 59 and 62 months over the last century and post-WWII period, respectively), domestic inflationary policy is ebbing and disinflation & growth deceleration are predominating globally.  The preponderance of red in table below = negative growth/inflation revision trends. 

 

With bonds outperforming almost everything YTD and defensive equity style factors crushing small cap and early cycle exposure, the market is discounting a global transition into Quad #4 ….not a sustained, labor market led domestic decoupling.  

 

…..although the Siren Song of the late-cycle data is certainly seductive for the pro-cyclical investor/economist.  

 

 

SIREN SONG: OCTOBER EMPLOYMENT - GM P L

 

 

Macro Realists…with a View:   From a fundamental perspective, we’re not saying an economic crash is necessarily imminent.  In fact, historical cycle precedents suggest the peak in the economic cycle consistently occurs ~7 months after the trough in Initial claims and peak gains in monthly payrolls.  And as it stands currently, we’re still establishing levels of peak improvement in both those measures.  

 

Timing the market peak, however, has been a more Daedalean effort.  Over the post-war period, the temporal, labor peak --> market peak --> economic peak has been fairly consistent.  However, over the last two cycles the market peak has occurred largely coincident to peak improvement in leading labor metrics. 

 

Given where we are in the cycle, our expectation for domestic growth to slow from a rate of change perspective and the discrete slowdown OUS, we continue to like cash, the long-bond and XLP/U/V sector exposure (at a price). 

 

Those recommendations aren’t particularly sexy or creative  - we’ve been recommending that all year- but we think they continue to work over the immediate/intermediate term as prices/expectations re-couple to (a less sanguine) reality. 

 

SIREN SONG: OCTOBER EMPLOYMENT - Eco labor Cycle Profile 2 normal

 

SIREN SONG: OCTOBER EMPLOYMENT - Claims Cycle

 

 

A few of the other Notables: 

 

PAYROLLS:  Net payroll gains slowed sequentially but the YoY and 2Y ave growth rates were essentially flat and holding at the peak level seen in the last cycle  The Household Survey – which is largely useless on month-to-month basis - was strong with the labor force rising alongside a reported +638K gain in Employment and a decline of -267K in Unemployed

 

SIREN SONG: OCTOBER EMPLOYMENT - NFP Growth YoY

 

 

UNEMPLOYMENT: The unemployment rate ticked down to 5.8% and the U-6 rate declined to 11.5%, dropping the most in 7-months – both of which, if they follow their present trajectory, will be consistent with a tightening timeline in 3q/4q next year. 

 

SIREN SONG: OCTOBER EMPLOYMENT - Unemployment Rate

 

 

SLACK:  Alongside the decline in the U-6 rate, the share of ST unemployed continues to rise, the trend in NFIB’s Jobs Hard to Fill and Compensation Indices remain positive, and available workers per job opening is back to pre-recession averages

 

SIREN SONG: OCTOBER EMPLOYMENT - Available workers per job

 

SIREN SONG: OCTOBER EMPLOYMENT - ST unemployed

 

 

HOUSING DEMAND:  The employment-to-population ratio for 25-34 year olds ticked up again as employment growth for the cohort accelerated +70bps to +3.2% YoY – the fastest rate of growth since well before the start of the Great Recession.   

 

As we’ve highlighted, intuitively, housing demand from this demographic (which is central to 1st-time homebuyer demand) could be expected to improve over the intermediate term as employment growth matures, savings time accumulates, and work history reaches a duration necessary to satisfy mortgage underwriting standards in a tighter regulatory environment.  

 

SIREN SONG: OCTOBER EMPLOYMENT - Housing Demand 25 34 YOA Employment 

 

 

SIREN SONG: OCTOBER EMPLOYMENT - Employment Summary Table

 

 

 

Enjoy the Weekend,

 

 

Christian B. Drake

@HedgeyeUSA


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.63%

Strong Restaurant Sales, Traffic, Employment Data

Black Box reported eye-catching sales and traffic growth for the month of October, up +2.8% and +0.4%, respectively.  Two-year trends, though slightly weaker, were strong as well, with sales up +1.9% and traffic down -0.5%.  October marks the first time we’ve seen positive traffic in the industry since January 2012.  It is also the strongest two-year number we have on file since we began compiling data in November 2011.  

 

This confirms our view that declining gas prices (July, August, September, October) and notable employment growth are leading to a period of improved trends in the restaurant industry.  As you can see below, we were properly positioned for this move.  We still view this as a difficult environment to be in for those looking for shorts within the restaurant space.  With that being said, we believe we’ve identified a couple and will continue to judiciously search for more.

 

Strong Restaurant Sales, Traffic, Employment Data - 1

 

Strong Restaurant Sales, Traffic, Employment Data - 2

 

Strong Restaurant Sales, Traffic, Employment Data - 3

 

This is the fourth consecutive month employment growth has increased year-over-year across our five primary age cohorts.  While we saw strength across the board, we do have several notable callouts:

  • 20-24 YOA: an impressive +194.4 bps sequential acceleration in employment growth
  • 25-34 YOA: the strongest month of employment growth we’ve seen since prior to the recession
  • 45-54 YOA: four straight months of growth after 20 straight months of declines
  • 55-64 YOA: second strongest month of growth we've seen in the last 22 months

 

While widespread employment growth is positive for all restaurants, October’s employment release is particularly positive for casual diners as both the 45-54 and 55-64 YOA cohorts are showing their strongest levels of growth in the last two years.  With that being said, we continue to favor BLMN and BOBE on the long side as both have the potential to unlock substantial shareholder value through restructuring of sorts.

 

The release was also a positive for quick-service and fast casual restaurants, highlighted by a very strong month of growth in the 20-24 and 25-34 YOA cohorts. We continue to favor select quick-service and fast casual operators including JACK, YUM, CMG, KKD, PLKI and WEN.

 

September Employment Growth Data:

  • 20-24 YOA +2.91 YoY; +194.4 bps sequentially
  • 25-34 YOA +3.24% YoY; +77.5 bps sequentially
  • 35-44 YOA +1.37% YoY; +48.9 bps sequentially
  • 45-54 YOA +1.05% YoY; +84.2 bps sequentially
  • 55-64 YOA +3.54% YoY; -5.6 bps sequentially

 

Strong Restaurant Sales, Traffic, Employment Data - 4

 

Please let us know if you’d like to discuss any of our current ideas in greater detail or would like to review our deep dive work on active ideas including BOBE, SBUX and CHUY.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


Keith's Macro Notebook 11/7: Yen | Russia | UST 10YR

 

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


Retail Callouts (11/7): Port Dispute, ANF, TGT, GPS, LULU, COLM

Takeaway: Port labor situation getting too much play relative to importance. ANF miss despite decidedly better product. GPS comp -3% - get used to it.

COMPANY HIGHLIGHTS

 

Fears Grow Over West Coast Ports as Comps Hit

(http://www.wwd.com/retail-news/trends-analysis/fears-grow-over-west-coast-ports-as-comps-hit-8024518?module=Business-hero)

 

  • "Retailers already concerned about weak demand as they head into the critical holiday season have a new concern: limited supply."
  • "In reporting weaker-than-expected sales and negative comparable sales for the third quarter and projecting lower-than-expected sales and a low-single-digit comp decline in the holiday quarter, which has just begun, Ann Inc. also said it was being hit by delayed shipments due to congested West Coast ports, which have been crippled by a union dispute."

 

Takeaway: Let's be clear about something...disputes with Port workers only happen in the fourth quarter. You will never see workers threatening to strike in the month of June. It's a seasonally low freight shipping period, which gives the workers zero leverage. They'll always threaten a strike from October-December. This happens every 2-3 years, and rarely ends up in a prolonged work stoppage that negatively impacts retail or the US consumer. The better companies see this coming from a mile away, and usually ship product a few weeks early. Air freight companies are all over this as well -- they'll make sure the product finds its way into the US (albeit at 10-12x the price of ocean freight).  If things get too bad, the President will usually step in and force an agreement between unions and shippers. Rubbing the two constituents the wrong way isn't ideal, but it's a better choice for Obama than kids not getting presents this holiday.

 

ANF - ABERCROMBIE DISAPPOINTS

(http://phx.corporate-ir.net/phoenix.zhtml?c=61701&p=irol-newsArticle&ID=1987330)

Q3 Sales: -12%

Q3 Comps: -10%

  US: -7%

  Int'l: -15%

e-commerce: +8%

 

Takeaway: We took this name off our long bench a month ago because we just did not have confidence in anything beyond the consensus 'cost cutting, Board change' thesis. Our concern was that when all is said and done, you'd be left with a brand that is Abercrombie -- and lacking relevance with its core consumer. What's interesting is that the product over the past two months has reportedly gotten better -- in quality and aesthetic. Apparently consumers don't care. Even e-commerce was up only 8%, which is unacceptable for any brand (19% of total sales for ANF). We're fine staying away from this one at any price within spitting distance of $30.

 

TGT - Target Names Jacqueline Hourigan Rice as Senior Vice President, Chief Risk and Compliance Officer

(http://pressroom.target.com/news/target-names-jacqueline-hourigan-rice-as-senior-vice-president-chief-risk-and-compliance-officer)

 

  • "Target Corp. announced it has hired Jacqueline Hourigan Rice as senior vice president, chief risk and compliance officer."
  • "Rice joins Target effective December 1 and will report directly to Brian Cornell, chairman of the board and chief executive officer of Target. In addition, the company is elevating the position to include centralized oversight of enterprise risk management, compliance, vendor management and corporate security under her leadership."
  • "Rice comes to Target from General Motors Company where she was most recently the chief compliance officer. Her 17-year-career with the company included key global leadership roles in areas that included ethics, compliance and data privacy."

 

Takeaway: Two C-suiters over the past 6 months from GM with titles that involve Security and Risk strikes us as a little ironic. That may be an unfair characterization of the two individuals - we know very little about either of them. But we don't understand why TGT is adding to the executive team in areas that have very little touch with the end consumer. Maybe there are seats that need to be filled but we characterize this as a B priority. Nearly all of the executives who surround Steinhafel are still in their respective seats and most are Target lifers. Cornell is approaching his 3 month anniversary with the company and we'd expect to see some turnover soon. That is if the company wants to go from TGT 1.0 to 2.0.

 

GPS - Gap Q3 Earnings Better Than Expected (http://www.gapinc.com/content/gapinc/html/media/pressrelease/2014/med_pr_GPS_Sales_November0614.html)

October Sales: $1.29B  (Comp -3%)

Q3 Sales: $3.97B  (Comp -2%)

Q3 EPS Guidance: $0.78 - $0.79 ($0.06 from tax rate) vs Consensus $0.71

 

Takeaway: GPS is batting 3-for-3 this quarter when it comes to missing sales expectations. Flat sales for the quarter and a $0.06 tax benefit is nothing to get excited about. Operating expenses came in lower than expected, but that's down from the guided 8% growth. Our thoughts are the same now as they were when Glen Murphy announced that he was jumping ship; GPS isn't in trouble because Glen Murphy is leaving, Glen Murphy is leaving because GPS is in trouble.

 

 

OTHER NEWS

 

LULU - lululemon athletica appoints duke stump as executive vice-president, community and brand

(http://investor.lululemon.com/releasedetail.cfm?ReleaseID=880462)

 

  • "lululemon athletica inc. announced that Duke Stump has been appointed to its senior leadership team as Executive Vice-President, Community and Brand effective December 1, 2014. Mr. Stump will be responsible for continuing to build an authentic and differentiated global Brand and Community experience, and amplifying lululemon's global impact. He will report to the Company's Chief Executive Officer, Laurent Potdevin."

 

TGT - Target Is Closing Another 11 Stores

(https://time.com/money/3558447/target-closing-stores/)

 

  • "Target decided to close eight stores in May, including two stores in the Las Vegas area and two stores in Ohio. This week, Target announced it will be closing 11 more stores in the U.S., including two Chicago-area locations and three Targets in Michigan."
  • "The 11 stores will be shut down by February 1, 2015."

 

PETM - Private-Equity Firms Invited to Final Round of PetSmart Bidding

(http://online.wsj.com/articles/private-equity-firms-invited-to-final-round-of-petsmart-bidding-1415314908)

 

  • "A handful of private-equity firms have been invited to the final round of bidding for PetSmart Inc., according to people familiar with the matter."
  • "Firms including BC Partners, Apollo Global Management LLC, KKR & Co. and Clayton Dubilier & Rice Inc. have been asked to submit second-round bids and meet with the pet-supply retailer’s management, the people said."

 

COLM - Columbia Sportswear opens store dedicated to performance fishing gear

(http://www.chainstoreage.com/article/columbia-sportswear-opens-store-dedicated-performance-fishing-gear)

 

  • "Columbia Sportswear Company opened its first-ever store dedicated to its performance fishing gear (PFG) at the Avalon Mall in Alpharetta, Ga. Columbia’s PFG collection is inspired by the performance, style and comfort needs of professional and recreational anglers of all ages."
  • "The 3,176-sq.-ft. store has a clean design, boutique feel and digital integration that includes an interactive knot-tying station."

 

SHLD - Comedian Mike Myers takes jab at Sears Canada in rebranding promo

(http://globalnews.ca/news/1657511/watch-comedian-mike-myers-takes-jab-at-sears-canada-in-rebranding-promo/)

 

  • Sears Canada enlisted a little star power for what appears to be a rebranding video to let Canadians know the struggling retailer isn’t going away.
  • In the marketing video, Toronto-born comedian Mike Myers stopped by Sears Canada’s corporate office to visit his older brother Peter, a long-time employee.
  • The Wayne’s World star asks his brother “is Sears Canada going away?”
  • “We are not going anywhere,” his brother replies.

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