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Caution: The Current U.S. Expansion is Late-Cycle. Here’s Why

 

On The Macro Show this morning, Director of Research Daryl Jones explains Hedgeye's quarterly Macro Themes and highlights some slides from the Q2 Themes presentation about economic cycles.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

 

 

 


THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT

Has a policy maker ever said that “strength” was transitory and “we expect conditions to worsen away from target over the medium term”?.  Anyway, the May employment report was strong pretty much across the board.

 

As always - we’re not big on adding to the noise of manic data reporting on employment Friday but below are some quick highlights.  If you have any specific questions or would like to dig/discuss a particular dimension of the labor market in more depth, let us know.

 

  • Payrolls: RoC Solid -  NFP & Private payrolls improved both sequentially (MoM and 3M/6M MA) and in RoC terms.  March/April get net positive revision of +32K
  • Unemployment Rate & LFPR : Off the Lows - Unemployment rate ticked up to 5.5% but the internals were largely positive with labor participation rising for a second month and the chg in employed > chg in unemployed.
  • Wages: Golf Clap - Both Total Private & Nonsupervisory Worker wage growth accelerated sequentially (from sub-middling to more discretely middling).  ECI and NFIB data continue to suggest forward wage inflation but that been true for a while; material BLS reported wage acceleration has remained a panglossian phantasm. 
  • Slack: Paint Still Drying -  The U-6/Underemployment rate held at 10.8%.  From a Trend perspective every slack chart looks basically the same (charts at bottom below): The labor markets painfully slow march towards tautness remains ongoing.  
  • Housing = Mojo Extends to May:  Residential Construction employment growth re-accelerated (suggesting ongoing health in demand trends) while 25-34YOA employment again accelerated to a new cycle high - headship rates/HH formation will benefit on a lag.
  • Energy Sector: Broad Strength > Concentrated Weakness -  The bleed in Energy sector employment continued in April/May but the concentrated weakness continues to get swamped by the broader labor mkt strength.  
  • (Firm) Size Matters:  Small Firm employment (1-499) growth is carrying the load (+2.5% YoY) according to the latest May ADP data.  Large & Extra-Large Firm employment remains in multi-month deceleration mode currently.   
  • Income/PCE: Its Just Math - The net of rising employment + rising wages + flat hours worked should = another solid month of reported aggregate income growth in May.  Whether that income actually gets spent is a different question but rising income + rising savings remains a positive for the aggregate household PnL/BS. Salary and wage income remains of particular import as it has been the primary source of funds for households as credit growth has remained somewhat muted.  We’ll get the April consumer credit figures this afternoon
  • Policy = Don’t Call it a Comeback:  The May data is probably irrelevant for direct policy action in June but it will likely serve as a backboard in the framing of the June meeting statement (i.e. 1Q probably represented transitory weakness and ‘we expect employment/inflation to trend toward target over medium term’) 

A visual tour of the data is below.  Have a great weekend. 

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Empl Table

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Housing Demand 25 34 YOA employment

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Resi Empl

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Oil   Gas May

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Oil Industry April

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Payroll Growth vs Earnings Growth

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - NFP TTM gains

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Empl diffusion Indices

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Available Workers per Job

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - ST Unemployed

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - JOLTS Quits

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - Employment By Firm Size

 

THE SLOW MARCH TO TAUTNESS | MAY EMPLOYMENT - NFIB Jobs Hard to Fill

 

Christian B. Drake

@HedgeyeUSA

 


After a 44% Plunge, Hedgeye's Howard Penney Is Taking This Beaten Up Stock Off His Short List

Takeaway: Our Restaurants analyst Howard Penney has taken NDLS off his short list.

Hedgeye Restaurants Sector Head Howard Penney announced the removal of Noodles & Co (NDLS) from his SHORT LIST in a note to customers yesterday.

 

Here’s what he had to say:

 

“[A]t this point we believe the stock has been beat to the floor. We originally added it to our list as a short on 2/18/15, and as you see in the chart below it was a great time to get in short.  Since our call the stock price has traded down 44.2% falling from $26.56 to $14.81.  The valuation of this company is very much in line with where we think it is worth and we do not believe there is much more room to go lower, EV/ NTM EBITDA is down 33.8% from our call to 9.24x.

 

Penney’s original reasons for shorting the stock still hold true, but for the most part are now priced into the valuation.

After a 44% Plunge, Hedgeye's Howard Penney Is Taking This Beaten Up Stock Off His Short List - z ndls

 

**For more information on our institutional research ping sales@hedgeye.com


Early Look

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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.

TODAY AT 1PM: MACAU MAY CONF CALL

Takeaway: Research Topic: Who has the most to lose in an increasingly imbalanced supply demand environment over the next two years?

We will host a conference call TODAY AT 1PM ET to discuss the latest Macau data, our outlook on the market and the stocks and the presentation of a new, original research topic.

 

 

RELEVANT TICKERS INCLUDE:

LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.

 

 

DISCUSSION POINTS

  • Details behind May GGR 
  • Discussion of base mass trends
  • The impact of Mass re-classifications
  • Revised 2015 monthly market projections
  • Hedgeye company EBITDA estimates vs the Street (LVS, WYNN, MGM, MPEL, and Galaxy Entertainment) 
  • Who has the most to lose in the increasingly imbalanced supply demand environment over the next two years? 

 

CALL DETAILS

Attendance on this call is limited. Ping  for more information.

 


Jobs Day, Buckle Up

Client Talking Points

YIELDS

What an epic week – the storytelling on why yields ripped higher is as fascinating as the move itself… we’ve gone from “oh, it’s because inflation and growth in Europe are back” to… “uh oh, this is a liquidity event” – those are 2 very different things; one much scarier than the other.

STOCKS

One competitor said something about “global growth and PMIs accelerating”, which is patently false (see our Early Look from yesterday with that data), but also look at 1-month stock market moves: Dow Transports -3.6%, Hang Seng -3.5%, KOSPI -4.6%, Poland -5.7% and Brazil -5.9% #GlobalSlowing

 

GOLD

We like it more than we have in maybe 3 years, and maybe that’s wrong right now, but heading into what we think will be a series of slowing #LateCycle U.S. jobs reports, we think U.S rates can move a lot lower from here; need to see Gold hold $1155-1175 zone.

Asset Allocation

CASH 46% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 12%
FIXED INCOME 28% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility. PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016. Both properties should well exceed current Street estimates for win per slot and EBITDA. PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.

ITB

Housing went 3 for 3 as the Trinity of Fundamental Data Points released in the latest week continued to reflect accelerating rates of improvement across both the New and Existing markets. New Home Sales in April rose +6.8% month-over-month to +517K.  More notably, sales were up a remarkable 26% on a year-over-year basis as NHS re-converged back to the trend in New Home construction. Pending Home Sales rose +3.4% sequentially in April, accelerating to +14% year-over-year with the Index making a new 101-month high.  Pending Home Sales represent signed contract activity and are a historically strong lead indicator of Existing Home Sales.  The MBA’s weekly Mortgage Purchase Application Index re-captured the 200-level, rising +1.2% week-over-week and accelerating +250bps sequentially to +13.1% year-over-year.  

TLT

We believe the U.S. economy is past peak in rate-of-change terms and sliding down the slope to an eventual cliff (i.e. recession). That’s our call and we’re sticking to it. Friday’s negative revision takes our full-year estimate for real GDP growth down to +2% (from +2.3% prior). Both the Fed and Street are up at +2.5%, both of which continue to careen down from perpetual expectations of rainbows-and-puppy dogs (i.e. 3-plus percent growth) earlier this year. We reiterate our call to be long of long-duration in its many forms:  TLT, VNQ, EDV, and GLD (gold has historically performed well in down-dollar and down-interest rate environments and we think the June 17th FOMC statement has a high probability of being dovish and dollar-bearish).

Three for the Road

TWEET OF THE DAY

This Is The Biggest Risk Facing U.S. Stocks Over The Next Decade https://app.hedgeye.com/insights/44498-steiner-this-is-the-single-biggest-risk-facing-u-s-stocks-over-the-n?type=video… via @HedgeyeFIG cc @KeithMcCullough

$SPY $SPX

@Hedgeye

QUOTE OF THE DAY

A leader has the vision and conviction that a dream can be achieved. He inspires the power and energy to get it done.

Ralph Lauren

STAT OF THE DAY

Amazon will now ship items that weigh 8 ounces or less to you for free.

 

The Macro Show - CLICK HERE to watch today's edition at 8:30am ET.


CHART OF THE DAY: Cowbell & Cannons! (German Bund Yields)

Editor's Note: The chart and excerpt below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to begin subscribing and staying a step ahead of consensus. 

 

"...Unless it’s different this time, Volatility ↑ + Illiquidity ↑ doesn’t end well...

 

...Cannons, as in unadulterated and obliterating launches of money printings and bond buyings. Cowbell, as in “whatever it takes” when German Bund Yields (10yr) double, in 72 hours!..."

 

CHART OF THE DAY: Cowbell & Cannons! (German Bund Yields) - z 06.05.15 chart


investing ideas

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