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It's Still an Illiquid Small Cap Bubble | $IWM

Editor's note: This is an excerpt from CEO Keith McCullough's morning research. For more information on how individuals can subscribe click here.

 

After dropping another -1% yesterday, the Russell 2000 (IWM) is right back into the red for 2014 year-to-date (down -4.2% from its all-time #bubble high of 1208 in July).

 

It's Still an Illiquid Small Cap Bubble | $IWM - ben11

 

Stay with:

  • #GrowthSlowing Long Bonds (TLT, EDV), 

  • Consumer Staples (XLP) 

  • Healthcare (XLV) and 

  • REITS


EXISTING HOME SALES – EMERGENT MOJO, DAY 3

Takeaway: Existing Home Sales joins the bullish housing party, alongside NAHB (Tuesday) and Housing Starts & Mortgage Apps (Wednesday).

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - Compendium 112014 

 

Today's Focus: October Existing Home Sales 

EHS topped off three-days of strong housing data with a sequential gain of +2.5% up to 5.26M units SAAR – the third consecutive month of gains and the highest level in 13 months. 

 

Generally, there's limited usefulness in the EHS report on the sales side since the data is well-telegraphed by the Pending Home Sales report a month earlier.  However, we’ve seen EHS diverge from the more modest gains in PHS the last couple months – a trend we’re seeing on the new home side as well with New Home Starts positively diverging from Permits in Sept/Oct.  The two series are tethered, so unless we see a positive revision and/or sizeable increase in PHS for October, its unlikely we see a gain of similar magnitude in existing sales next month.

 

Looking at the recent historical data, the direction of convergence between EHS and PHS after a period of divergence isn’t consistent.  As can be seen in the 2nd chart below, EHS re-coupled to PHS to the downside in 2H13 while, conversely, PHS played catch-up to EHS mid-year this year. 

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - EHS vs PHS 1mo Lag

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - EHS vs PHS 1mo Lag 3Y 

 

TOTAL EHS:  Total EHS rose +2.5% MoM to 5.26M Units SAAR, marking a third month of gains and the highest level since September of last year.  Notably, sales turned positive on a YoY basis (+2.5% YoY) for the first time in 12 months.  As we’ve been highlighting, we continue to expect improvement in rate of change measures on the volume side as we traverse the peak collective impact (ie. easiest comps) of weather, QM implementation and FHFA loan limit reductions into 2H15. 

 

REGIONAL:  All regions except the West reported both sequential gains and positive year-over-year growth in sales.  All regions reported positive YoY growth in median prices with all except the Northeast registering accelerating price growth. 

 

INVENTORY:  Inventory remains relatively tight and should help buttress the moderation in prices.   On a Unit basis, inventory declined -2.6% MoM to 2.22M, the 3rd month of decline and lowest level since March.  The confluence of rising sales and lower inventory took months supply down -4.1% sequentially to 5.06 months.  

 

DISTRESSED/CASH/1st-timers:  First-time homebuyers held at 29% of sales for the 4th straight month and, on an annual basis, remain at the lowest level in three decades.   All-cash sales increased to 27% from 24% prior while Distressed Sales declined to 9% vs 10% in October and 14% a year ago. 

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - EHS LT

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - EHS Regional 

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - EHS Regional YoY  

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - EHS Regional Price 

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - EHS Inventory Units 

 

EXISTING HOME SALES – EMERGENT MOJO, DAY 3 - EHS Inventory Mo Supply 

 

 

About Existing Home Sales:

The National Association of Realtors’ Existing Home Sales index measures the number of closed resales of homes, townhomes, condominiums, and co-ops. Existing home sales do not take into account the sale of newly constructed homes. Existing home sales account for 85-95% of all home sales (new home sales account for the remainder). Therefore, increases in existing home sales tend to signify increasing consumer confidence in the market. Additionally, Existing Home Sales is a lagging series, as it measures the closing of homes that were pending home sales between 1 and 2 months earlier.

 

Frequency:

The NAR’s Existing Home Sales index is published between the 20th and the 22nd of each month. The index covers data from the prior month.

 

Joshua Steiner, CFA

 

Christian B. Drake

 


Keith's Macro Notebook 11/20: Yen | Europe | Russell 2000

 

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


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Morning Macro Call With Keith McCullough: ‘Why I’m Short the S&P 500 and Like Cash Right Now’

Hedgeye CEO Keith McCullough walks through the latest market and economic developments in this complimentary peek behind-the-macro-scenes of today's morning macro call for institutional subscribers.

 


Daily Trading Ranges, Refreshed [Unlocked]

This is a complimentary look at our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. It was published November 20, 2014 at 07:40. Click here to subscribe.

Daily Trading Ranges, Refreshed [Unlocked]   - DTR1

BULLISH TRENDS

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Daily Trading Ranges, Refreshed [Unlocked]   - Slide5

 

 

BEARISH TRENDS

Daily Trading Ranges, Refreshed [Unlocked]   - Slide6

Daily Trading Ranges, Refreshed [Unlocked]   - Slide7

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Daily Trading Ranges, Refreshed [Unlocked]   - Slide11
Daily Trading Ranges, Refreshed [Unlocked]   - Slide12

Daily Trading Ranges, Refreshed [Unlocked]   - Slide13


THE HEDGEYE MACRO PLAYBOOK

Takeaway: In today's edition of the Macro Playbook, we highlight the slowdown in global growth and how that might impact the U.S. economy/U.S. stocks.

INVESTMENT CONCLUSIONS

Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

 

QUANT SIGNALS & RESEARCH CONTEXT

 

  • Take the Fed’s Word For It On Global Growth: In yesterday’s FOMC minutes, committee members expressed concerns over the impact of slowing global growth on the U.S. economy. We couldn’t agree more. With the advent of this morning’s flash Manufacturing PMI data out of Europe, China and Japan, we received further confirmation of a slowdown in global growth in the month of November. Specifically, in Germany, Manufacturing PMI slowed to 50 from 51.4; in France, Manufacturing PMI slowed to 47.6 from 48.5; in China: Manufacturing PMI slowed to 50 from 50.4 (a six-month low); and in Japan, Manufacturing PMI slowed to 52.1 from 52.4. Our July 15th note titled, "SINGAPORE SAYS, “GLOBAL GROWTH WILL SLOW IN 3Q”"  was actually quite prescient when you delve even further into the recent economic data coming out of Europe, China and Japan.
  • Global Growth Slowing is NOT Good for the U.S. Equity Market: When Keith and I are in meetings with institutional subscribers, #EuropeSlowing remains the theme we spend the least amount of time talking about – primarily because calling for a European recession is trivial at this point in the cycle. Moreover, Japan is already in recession and looks set to remain there, while China’s economic slowdown also looks set to continue per the GDP math and Beijing’s recent guidance. It’s worth noting that in the most recently reported calendar year (2013), China, Japan and Europe  accounted for roughly 40% of both global GDP and global GDP growth on a PPP basis. Moreover, with roughly one-third of S&P 500 revenues coming from abroad, we can’t see how this weakness and commensurate USD strength will not negatively impact the operating results of U.S. companies in the upcoming quarters. Conclusion for perma-bulls: buy high and PRAY for more buyback activity! 

 

THE HEDGEYE MACRO PLAYBOOK - germany

 

THE HEDGEYE MACRO PLAYBOOK - france

 

THE HEDGEYE MACRO PLAYBOOK - china

 

THE HEDGEYE MACRO PLAYBOOK - japan

 

***CLICK HERE to download the full TACRM presentation.***

 

TRACKING OUR ACTIVE MACRO THEMES

#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.

 

Early Look: Building Expectations (11/20)

 

#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.

 

Top Ten Reasons to Stay Short the Euro (11/5)

 

#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.

 

#Bubbles: S&P500 Levels, Refreshed (11/18)

 

Best of luck out there,

 

DD

 

Darius Dale

Associate: Macro Team

 

About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.


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.

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