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The Week Ahead

The Economic Data calendar for the week of the 10th of November through the 14th of November is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.

 

 

The Week Ahead - 11.07.14 Week Ahead


HCA: Adding Hospital Corporation of America to Investing Ideas

Takeaway: We are adding HCA to Investing Ideas.

Please note that we are adding HCA (Hospital Corporation of America) to Investing Ideas today.

 

We will send out a report explaining our position next week.


The Best of This Week From Hedgeye

Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.

HEDGEYE TV

Hedgeye’s Brian McGough Explains Why $KATE Is a Winner

Hedgeye’s Retail Team added KATE to our Best Ideas List as a long in early October. Sector Head Brian McGough hosted an institutional conference call yesterday ahead of earnings, detailing his bullish thesis and highlighting why KATE’s growth story is widely misunderstood. In the excerpt below, McGough outlines his 3 key points. 

For access to the video in its entirety, contact sales@hedgeye.com.

 

Friday's Morning Macro Call


This is a free sneak peek at Hedgeye's Morning Macro Call for institutional subscribers.

CARTOON

#CurrencyBurning

The Best of This Week From Hedgeye - Currency burning 11.3.14

This is going to get really ugly.


Whinne the Putin

The Best of This Week From Hedgeye - Russia whinnie oil 11.5.14

Deflation is pulverizing Vladimir Putin (and oil bulls). On Tuesday WTI crude was down another -2% to $77/barrel.

CHART

Not Even Putin the Great Can Stop Gravity | $RSX #Oil

The Best of This Week From Hedgeye - chart2

On Wednesday the Russian stock market is down -25% year-to-date. Coincidentally, or not, the price of Brent crude is down right around -25% year-to-date as well.

 

How Good Is Employment Really?

The Best of This Week From Hedgeye - COD 11.6.14

POLL OF THE DAY

 $70 Oil? 

As oil prices plunge to a three-year low, we wanted to know what you thought lies ahead.

 


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 80.30%
  • SHORT SIGNALS 78.51%

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

 

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


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