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Between "ROC's" & Hard Places

Takeaway: In light of the holiday and the crush of data we've decided to keep the format on today's housing note short & sweet.

“After all is said and done, more is said than done.”

-   Aesop

 

 

Aesop probably wasn't referring to analyzing new home starts and purchase activity in 2014, but that quote pretty well characterizes the monthly deluge of commentary and conjecture around dead flat TTM volume trends.  

 

Anyhow, we’ll can the verbosity ahead of the holiday and summarily review today’s trifecta of housing data below.   

 

In short:  The balance of recent data has come in slightly north of middling on an absolute basis but housing remains in a tough spot and industry escape velocity remains very much a phantasm.  However, from a Rate of Change perspective - given the comp dynamics - most of the data is inflecting positively, a trend which should extend as we traverse volume compares that continue to ease into 2H15. 

 

Purchase Apps:  Purchase Demand declined -4.8% sequentially after last week’s notable 11.7% rise (the largest weekly increase in 20 months) but held above the 170 level on the index for a second week.  From here, compares ease further into the last weeks of the year and take a second dive into the end of 1Q15

 

Pending Home Sales:  Pending home sales declined -1.1% but, to our point above, accelerated on a YoY basis to +2.2% - the second month of positive YoY growth after an eleven month run of negative sales growth.  The soft’ish PHS data the last couple months has diverged from the strength reported in EHS.  The two series are invariably tethered so we expect to see a re-coupling in favor of one or the other in the next few months. 

 

New Home Sales:  New Home Sales increased for a 3rd month, rising +0.7% sequentially and +2% YoY.   Sales were up +14% in 3Q against trough comps but are up just 1.4% YoY for the Jan-to-Oct period.  Both Sales and SF starts have been virtually flat over the last year but with NHS above the TTM trend for each of the last 3 months, the slope has shifted from slightly negative to slightly positive.   

 

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. 

 

*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.

 

Between "ROC's" & Hard Places - Compendium 112614

 

Between "ROC's" & Hard Places - EHS vs PHS

 

Between "ROC's" & Hard Places - NHS Existing to New Ratio

 

Between "ROC's" & Hard Places - NHS LT w Summary Stats

 

Between "ROC's" & Hard Places - NHS Total   YoY

 

Between "ROC's" & Hard Places - PHS Index   YoY TTM

 

Between "ROC's" & Hard Places - NHS Sales vs SF Starts TTM

 

Between "ROC's" & Hard Places - NHS Regional

 

Between "ROC's" & Hard Places - NHS Mean   Median Price

 

Between "ROC's" & Hard Places - PHS LT w Summary Stats

 

Between "ROC's" & Hard Places - PHS Regional

 

Between "ROC's" & Hard Places - PHS Regional YoY

 

Between "ROC's" & Hard Places - Purchase 2013 v 2014

 

Between "ROC's" & Hard Places - Purchase   Refi YoY

 

Between "ROC's" & Hard Places - Purchase LT w Summary Stats

 

Between "ROC's" & Hard Places - Composite LT w Summary Stats

 

Joshua Steiner, CFA

 

Christian B. Drake

 


Cartoon of the Day: Gobble, Gobble!

Cartoon of the Day: Gobble, Gobble! - Yen turkey cartoon 11.27.2014

Happy Thanksgiving from Hedgeye. Be sure to count your blessings.


Morning Macro Call with Keith McCullough: This Ziploc Bag Market Has 1000 lbs of Nasty In a 1-lb Bag

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

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.

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY

Takeaway: The labor market cools off vs its recent performance, but that's not surprising given how strong the data has been.

Labor Conditions Take a Small Step Backward

Rolling claims remain below the key 300,000 level.  However, the one-week SA data shows the first peek above that level in 11 weeks. The rate of improvement slowed further this week to -12.5% y/y.  The labor market remains healthy and is still improving, but at slowing pace.

 

 


CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 9

 

The Data

Prior to revision, initial jobless claims rose 22k to 313k from 291k WoW, as the prior week's number was revised up by 1k to 292k.

 

The headline (unrevised) number shows claims were higher by 21k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 6.25k WoW to 294k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -12.5% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -15.9%

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 2

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 3

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 4

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 5

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 6

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 7

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 8

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 10

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 11

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 19

 

Yield Spreads

The 2-10 spread fell -8 basis points WoW to 173 bps. 4Q14TD, the 2-10 spread is averaging 184 bps, which is lower by -15 bps relative to 3Q14.

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 15

 

CLAIMS REMAIN BELOW 300K BUT COOL OFF SLIGHTLY - 16

 

Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT

 


We Think a Coming Fed #FreakOut Sends Yields Lower

Editor's note: This is a brief excerpt from Hedgeye morning research. To learn more about becoming a subscriber click here.

 

* * * * * * * 

Right now, the market is still positioned net SHORT -128,000 contracts (net futures and options positions) in the 10YR treasury bond market. In other words, bond bears are getting royally creamed as the 10YR crashes alongside growth and inflation expectations.

 

<chart3>

 

As of this morning, the 10YR yield is down -26% year-to-date to 2.25%. That’s called a #Crash. Our immediate-term level of short-term support is 2.22%.

 

On a related note, the Yield Spread has compressed to 173bps. That’s the lowest of 2014. And yes, it is a bearish growth signal.

 

For the record, we still think yields go lower as the Fed freaks about #deflation in Q1 of 2015.

 

We Think a Coming Fed #FreakOut Sends Yields Lower - 111


LEISURE LETTER (11/26/2014)

Tickers:  HLT, NCLH, CCL

EVENTS

  • Dec 1:  8:30 am  IKGH Q3 earnings
  • Dec 2: 11 am ISLE Q2 2015 earnings
  • Dec 8: 10:30 MTN Q1 2015 earnings
  • Dec 12: Trump Taj Mahal Closing
  • Dec 17:  Upstate NY casino decision

COMPANY NEWS

TCG.LN – Thomas Cook offered a less optimistic outlook for its forward bookings for 2015.  Winter bookings are now expected to be down 2%. However, Thomas Cook is more encouraged about its Summer 2015 booking cycle, led by its UK business (UK: bookings up 8%, prices +1%). Thomas Cook also announced that its CEO, Harriet Green, has stepped down from the business and will be replaced by COO, Peter Fankhauser, who will take over with immediate effect.

 

LEISURE LETTER (11/26/2014) - ww

Takeaway:  Thomas Cook's lowered outlook is an indication of weaker demand leisure trends in Europe particularly in the next 3-6 months. It seems that the UK, and only the UK, is leading the growth in Europe. This news does not bode well for the European business for the cruisers and lodgers in the near-term.   


HLT – Hilton Worldwide Middle East and Africa has launched its annual Winter Sale, offering travelers an opportunity to save up to 33% on their stays throughout 2015.

 

HLT – The Maui Lu Resort, a hotel development in Hawaii, sold to Japan-based Capbridge Group for an estimated $60 million. Once complete, the property will become a Hilton Grand Vacations Timeshare with 388 vacation villas on a 28-acre property. Capbridge Group, which announced plans to buy the property in October, will tackle the final development phase in 2015. The property will come online in 2017.

Article HERE

Takeaway: Hilton Hotels continuing to pursue a capital light timeshare strategy.

 

NCLH – announced an agreement with Princess Cruises, Ltd. to purchase the 684-passenger ship Ocean Princess for its newly acquired Oceania Cruises brand. The new addition will be named Sirena. Upon delivery in March 2016, Sirena will immediately undergo a 35-day, $40 million refurbishment in Marseille, France to elevate the ship to the Oceania Cruises' standard of elegance. The ship will welcome her first guests in late April 2016. 

Takeaway:  NCL paid $82m for the 15-yr old Ocean Princess or ~$120k per berth.  Including the $40m investment in Ocean Princess, that translates to $178k per berth. For comparability, the recently launched Regal Princess cost ~$201k per berth and the NCL Escape/Bliss cost $225k per berth. From Norwegian's perspective, they remain committed to growth and buying this older ship may generate a higher ROIC than if they built a new one.

 

CCL – When ms Koningsdam debuts in 2016, the ship will feature Holland America Line's first-ever purpose-built staterooms for families as well as single staterooms among its 1,331 guest accommodations (total capacity is 2,650). In addition, many familiar stateroom categories such as Neptune, Signature and Vista suites will be available in a wider range of sizes and different configurations to choose from.

Article HERE

 

CCL Princess Thanksgiving Cyber Week Sale 

Guests can save up to 50% off short cruise Getaways and weekend cruise vacations and bring along their friends and family with third and fourth guests as low as $50 per person. In addition to low fares, guests can book their stateroom with deposits of only $1 per person for getaway cruises shorter than five days.

INDUSTRY NEWS

Mainland Corruption Crackdown, Tycoons in Hiding – Many Mainland Chinese tycoons are hiding out at the five-star Four Seasons in Hong Kong to avoid being investigated or questioned by officials as part of China's anti-corruption campaign. While in residence, the tycoons turned guests are kept informed of the progress of their graft cases by visitors from the mainland. 

Article HERE

Takeaway: A clear indication that business people are taking the corruption seriously. 

 

Macau Urged to Diversify Its Investment Away From China – The 2003 winner of the Nobel Prize in Economics Robert F. Engle advised Macau Government Officials to invest more money abroad in order to diversify its investment portfolio. “If the biggest risk to the Macau economy is the Chinese economy, then you do not want to invest all your money in the Chinese economy. You should invest in other assets around the world”, he said. According to Mr. Engle, such investment strategy would have limited impact but would make the Macau economy more resilient against downturns in the Chinese economy.

Article HERE

 

The King of Gambling Celebrated 93rd Birthday – Macau casino mogul Stanley Ho Hung Sun celebrated his 93rd birthday on Tuesday. Mr Ho and members of his family celebrated by giving HKD2 million (US$258,000) to the Community Chest of Hong Kong charity fund. 

Article HERE


Macau MICE Booming – The latest data from the Statistics and Census Service indicates 240 MICE events were held in 3Q 2014, an increase of 14 events versus the same period last year.  Receipts from these exhibitions exceeded MOP37 million (US$4.6 million) in the quarter, up 81% compared to MOP21 million in receipts during the same period last year. During 3Q 2014, the total number of participants and attendees to MICE events reached 724,800, up 16% compared to the same period of last year. Some 214 of the total events, or almost 90%, were meetings, which nevertheless only attracted 4% of total participants and attendees. The other 96%, totaling 695,456 individuals, joined the 26 exhibitions instead. 

Article HERE

Takeaway: Non-gaming is certainly doing better than gaming in Macau.

 

Hengqin Residential Sales Increasing – Over the last month, the pre-sale of apartments planned in Hengqin have been gaining in popularity. According to a local sales data, more than two hundred pre-development flats sold out within three weeks. Sales data indicates, about 70% to 80% of buyers are local residents, and most of them are young people below the age of 30.

Article HERE

Takeaway: Newly developed, larger flats at a lower price with better air quality and a shorter commute making Hengqin Island real estate more appealing for workers commuting to Cotai than the Macau peninsula.

 

Mainland China Crackdown on Indoor Smoking – China is considering fining smokers who light up indoors as much as 500 yuan (USD81) and penalizing operators who don’t stop them, a sign of rising political willingness to curb an industry that brings in billions in tax revenue. If implemented, the changes would mark a reversal in the world’s most populous country, which so far hasn’t succeeded in eliminating smoking in public indoor places such as bars and restaurants. China is home to about 300 million tobacco users, and cheap cigarettes are often exchanged as a social courtesy – almost like a handshake. Surging health-care costs are now forcing China to follow other parts of the world in restricting such public smoking.

Article HERE

Takeaway: Smoking-related matters is getting more attention in China too

  

Foxwoods Casino to Shrink– Foxwoods Casino, the largest casino resort in North America, is getting rid of 1,000 slots and 120 table games to free up space for nightclubs and other new attractions as it adapts to fierce competition.  

Article HERE

Takeaway: Similar to the the Las Vegas Strip properties, Foxwoods is now looking to stronger food and beverage offerings as a way to drive revenues.   

 

UK Hotel Chains Listed – KSL Capital Partners, a private equity firm based in Denver, Colorado, has appointed the investment bank UBS to conduct a full review of strategic options for Malmaison Group including Malmaison Hotels and Hotel du Vin Hotels. KSL acquired Malmaison for £200m takeover in March 2013.  Malmaison operates 13 hotels throughout the United Kingdom with a brand premise of "Hotels that dare to be different".  While Hotel du Vin is a luxury boutique hotel chain that has fifteen hotels throughout the United Kingdom.

Article HERE

Takeaway: Might Starwood Capital be interested?

 

 

MACRO

Macau inflation increased by 6.18% YoY and 0.49% MoM.

 

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q 2014 earnings release, we recently turned negative on those stocks based on the negative European thesis. 

 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


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