Pending Home Sales | November Acceleration & Easing Comps Pave Way for Improving 2015

Takeaway: Pending Home Sales grew 80 bps on a month-over-month basis, which brings the year-over-year growth rate to +4.1% vs. +2.1% last month.

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.


Pending Home Sales | November Acceleration & Easing Comps Pave Way for Improving 2015 - Compendium 123114


Today's Focus: November Pending Home Sales Index

The National Association of Realtors (NAR) today released its Pending Home Sales Index for the month of November.


Pending Home Sales increased +0.8% MoM (vs. -1.2% prior), accelerating to +4.1% on a year-over-year basis.  Home Sales increased across all regions with YoY growth accelerating across each as well. Compares continue to ease from here. 


EHS Acceleration?  PHS is a leading indicator for EHS with an R-square of 0.86+ between the two series (lagged 1-month) over the history of the data.  Thus, the EHS release is typically uneventful as both the direction and magnitude of change in existing sales is well-telegraphed by the Pending Home Sales report a month earlier. 


However, we’ve seen rising volatility/divergence between EHS & PHS on a month-to-month basis since the series troughed in March.  Summarily, and as the 1st chart below illustrates, EHS began to diverge from the more modest gains in PHS in September and October. We posited that unless PHS saw a significant positive revision or showed material acceleration, reported gains in EHS would likely retreat.    

We saw this materialize in November with reported EHS dropping -6.1% sequentially, falling below the gain in PHS and taking the cumulative gain from trough to +7.4%. Now the setup has essentially reversed with the balance of risk for EHS to the upside with cumulative growth in PHS at a premium to EHS and showing incremental strength in November.   


RoC Improvement..Early Evidence:  A core (albeit simple) underpinning to our positive view on housing for 2015 is the progressively easier demand comps as we traverse the peak negative impact of rates/weather/credit tightening into 2H15.  We are seeing early evidence of 2nd derivative improvement with Pending Home Sales rising +4.1% YoY in November, marking a 3rd straight month of positive growth (following 11-months of neg. growth) and accelerating 200bps vs. the +2.1% growth reported last month.   In the intermediate term, demand compares continue to ease into February with Dec-Feb comps of -8%, -9%, -10%, respectively.  



Pending Home Sales | November Acceleration & Easing Comps Pave Way for Improving 2015 - EHS vs PHS 


Pending Home Sales | November Acceleration & Easing Comps Pave Way for Improving 2015 - PHS Index   YoY TTM 


Pending Home Sales | November Acceleration & Easing Comps Pave Way for Improving 2015 - PHS LT w Summary Stats 


Pending Home Sales | November Acceleration & Easing Comps Pave Way for Improving 2015 - PHS Regional YoY  



About Pending Home Sales:

The Pending Home Sales Index is a monthly data release from the National Association of Realtors (NAR) and is considered a leading indicator for housing activity in the US. It is a leading indicator for Existing Home Sales, not New Home Sales. A pending home sale reflects the signing of a contract, but not the closing of the transaction, which occurs 1-2 months later. The NAR uses data from the MLS and large brokers to calculate the Pending Home Sales index. An index value of 100 corresponds to the average level of activity during 2001.



The NAR Pending Home Sales index is released between the 25th and the 31st of each month and covers data from the prior month.



Joshua Steiner, CFA


Christian B. Drake

PODCAST| Must-Listen: McCullough Circles the Macro Market Globe In 15 Minutes

In this complimentary New Year’s Eve podcast of Hedgeye’s Morning Macro Call, CEO Keith McCullough discusses the most important macro data on his screen and answers key questions from institutional subscribers.



Keith highlights the desperate scene in Europe as Mario Draghi and Peter Praet (chief economist for ECB) effectively beg for quantitative easing. He also discusses the effects of Quad4 #deflation and why gold will not go up until the USD retreats.

Keith's Macro Notebook 12/31: China | Oil | VIX


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.


Takeaway: In today's edition of the Macro Playbook, we discuss what we think are rising prospects of another bubble in Chinese equities.


Long Ideas/Overweight Recommendations

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

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. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
  5. iShares MSCI France ETF (EWQ)



China Equity Bubble 2.0?: In 2014’s “Year of the Horse” China’s benchmark A-Shares index, the Shanghai Composite, galloped all the way to a +52.9% return, handing mainland Chinese and QFII investors their best annual return from stocks since a +79.9% return in 2009.


Prior to this year’s melt-up – the bulk of which had been condensed in the final 6M of the year (the Shanghai Composite was actually down on the year through 7/24) – A-Shares had delivered a negative annual return in three of the previous four years:


  • 2010: -14.3%
  • 2011: -21.7%
  • 2012: +3.2%
  • 2013: -6.8%


THE HEDGEYE MACRO PLAYBOOK - China Shanghai Composite 2H14 Ramp

Source: Bloomberg L.P.


This pattern is eerily similar to the five years preceding the 2006-07 bubble in the A-Shares:


  • 2001: -21.6%
  • 2002: -17.5%
  • 2003: +10.3%
  • 2004: -15.4%
  • 2005: -8.3%
  • 2006: +130.4%
  • 2007: +96.7%


THE HEDGEYE MACRO PLAYBOOK - China Shanghai Composite Yearly Returns

Source: Bloomberg L.P.


That obviously begs the question: is this the start of another bubble in mainland Chinese equities? Ultra-bullish volume and turnover signals support an outlook for continued upside, which rhymes with the pattern seen in 2006-07 (though there has been significantly more of both during this current melt-up):


THE HEDGEYE MACRO PLAYBOOK - China Shanghai Composite Volume   Turnover

Source: Bloomberg L.P.


To be crystal clear, we think the rally in the A-Shares has legs, though we continue to search for confirming evidence as it relates to forming a communicable thesis. We’re still in the early innings of this process (i.e. we’re not yet comfortable with officially going LONG of the CAF ETF), but we think the story is likely to end up as follows:


  1. Growth in China’s current and capital account inflows slow – already happening
  2. Growth in China’s banking sector liabilities slows on a trending basis – already happening
  3. Growth in China’s banking sector assets (e.g. loans designated for fixed assets investment) slows on a trending basis – already happening
  4. China’s overall economic growth slows – already happening
  5. As Chinese GDP growth slows, Chinese demand for commodities wanes; that, coupled with a rising dollar, weighs incrementally upon commodity prices – already happening
  6. As commodity prices fall, reported inflation readings in China continue to slow – already happening
  7. As this perpetual state of #Quad4 threatens the employment and wage growth outlook in China, the State Council and PBoC commit to a stated +7% floor in real GDP growth by easing monetary and fiscal policy, at the margins – already happening
  8. As Chinese officials ease, investors get excited about the prospects for stock market appreciation – already happening
  9. As the stock market appreciates, Chinese speculators commit incremental capital to the stock market in lieu of the property market, which causes property prices to contract – already happening
  10. As Chinese property prices contract, Chinese investors move incremental capital out of this sector into the stock market – already happening


Rinse and repeat?






Stay tuned as we look substantiate the aforementioned hypothesis with further analysis in the coming days and weeks. 2015’s “Year of the Sheep” could be a magical year for Chinese equities – the A-Shares in particular. It’s also worth noting that the sheep is generally considered to be a lucky animal among the Chinese, as it is the 8th animal in the 12-animial zodiac and the number 8 is generally perceived to be among the luckiest of all numbers in China


Happy New Year and best of luck to you and your team in 2015! Many thanks for your continued patronage and interest in our research.


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



#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: New Discoveries (12/29)


#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.


Moscow, We Have a Problem (12/16)


#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: “Hedge Fund Hotel” Edition (Part II) (12/8)


Best of luck out there,




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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.          

#Deflation is Dominating Headlines

Client Talking Points


If your economy slows, you have to centrally plan a stock market ramp! China’s Q4 economic slowdown = +20.6% gain in December for the Shanghai Comp! To close out the year up a whopping +52.9% (up next, The Year Of The Sheep).


Down another -1.9% this am to $53.12 WTI Oil has been crashing for 6 straight weeks (down -50% since June). Oil will actually signal immediate-term TRADE oversold in our model for the 1st time in a long time anywhere inside of $52.96 (i.e. the low-end of our current 52.96-55.91 risk range).


Remains in what we call a Bullish TREND Phase Transition (we made this call in July with the VIX at 10), making a series of higher-lows and holding immediate-term TRADE support of 12.85. All this tells us is that Q1 should be plenty volatile, and we like that.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.


As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.


Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deflation. 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. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road


TREASURIES: 10yr Yield drops 9bps this wk to 2.16%, -29% for 2014



The pain of discipline is far less than the pain of regret.

-Sarah Bombell


87% of parents are spending New Year’s Eve with their children and 34% of parents plan to fool their children into thinking it’s 2015 before the clock actually strikes midnight, according to a survey conducted by Netflix.

CHART OF THE DAY: Short-Sightedness In Oil (WTI November 2013 to today)

CHART OF THE DAY: Short-Sightedness In Oil (WTI November 2013 to today) - 12.31.14 chart


While signs were emerging at the start of 2014 of an emerging production glut and strong U.S. dollar environment, very few, if any, prognosticators, predicted a total collapse in global energy prices. But as outlined in the Chart of the Day, this is exactly what happened.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.