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Cartoon of the Day: No Rate Hike

Cartoon of the Day: No Rate Hike - No rate hike cartoon 09.17.205

 

Earlier this afternoon, Hedgeye CEO Keith McCullough tweeted the following:

 

"Yellen is simply not as good at her forecasting job as Hedgeye is." 

 

Some may interpret that as braggadocio. We respectfully beg to differ. What's going on right now around the globe is serious business affecting real people from all walks of life. Our proactive macro team has been absolutely all over this non-consensus, "lower-for-longer" Fed and growth-slowing call. We were correct.

 

Again. 

 

We invite you to take a deeper look at our contrarian research. Click here to learn more about how you can begin getting a step or two ahead of the herd and protect your portfolio. 


We’re Short Wayfair | $W

Following the recent release of our well-received Home Furnishings “Black Book,” our Retail team led by Sector Head Brian McGough decided to produce a stand-alone “Black Book” on Wayfair (W) which we presented on Monday.

 

We’re Short Wayfair | $W - z w7

 

McGough’s team did so given the increasing controversy surrounding the name. The focus of the deck was primarily upon the following key areas:

  • market size by category
  • revenue capacity and trajectory
  • customer acquisition costs, profitability and churn
  • appropriate expectations for gross margins
  • operational infrastructure and capital needed to break even,

 

The most important component of the deck is the sizable difference between how Wayfair is currently being viewed by Retail analysts vs. Internet analysts.

 

To be clear: our view is that Wayfair’s financial model does not work. The company will likely print negative earnings for the foreseeable future.

 

(*Please email our institutional sales team if you would like access to our Wayfair Black Book. You can reach them at sales@hedgeye.com)


A Closer Look at ETFs – ‘There’s a Lot of Risk in the System’

 

Hedgeye Financials analyst Jonathan Casteleyn appeared on today’s edition of The Macro Show and shed some light on the underlying risks in ETFs and the broader trading system. In his response to a subscriber’s question, Casteleyn reinforced the idea that cash is king in this current environment and to stay with companies that benefit from volatility.

 

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

 

Subscribe to Hedgeye on YouTube for all of our free video content.

 


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.

Starts & Permits | The Crawl Continues

Takeaway: New Highs are still new highs, even if they're slightly less impressive than we thought they were a month ago.

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.

 

Starts & Permits | The Crawl Continues - Compendium 091715 

 

 

Today’s Focus:  August Housing Starts & Permits

Last months hangover in permits following the NY tax exemption pull-forward in May/June was acute.   The Starts data for August released this morning, which saw MF and SF starts in July revised lower by -5.9% and -2.6%, respectively, reflected a more significant flow through to starts activity than originally estimated.

 

The positive framing to the negative revision is that a post-crisis high in new SF construction activity being negatively revised to a slightly lower post-crisis high is largely inconsequential.    

 

The same conclusion probably holds for the August data as well.  Single-family permit activity rose to the strongest level since January 2008 and, while starts declined -3.0% MoM to +739K, they remain at current cycle highs and offer some solid justification for the 10-year high in builder confidence recorded in yesterday’s HMI print for September (Note: HERE).  On the multi-family side, Starts dipped -3% while permits rose +4% following last month’s cratering. 

 

In short, August saw a sequential but unremarkable dip while the positive, albeit crawling, trend of improvement in the New Home market remains ongoing.   

 

Looking ahead to the Existing Market, we’ll get the EHS data for August on Monday.  Relative softness in PHS in both June and July along with flat-to-down trends in Purchase Applications continue to argue for modest downside risk to reported EHS over the next month or two.

 

 

Starts & Permits | The Crawl Continues - Starts Total LT

 

Starts & Permits | The Crawl Continues - SF Starts TTM

 

Starts & Permits | The Crawl Continues - SF Starts LT

 

Starts & Permits | The Crawl Continues - MF Starts TTM

 

Starts & Permits | The Crawl Continues - MF Starts LT

 

 

 

About Housing Starts & Permits:

The US Census Bureau records the number of new housing units that have obtained permits for construction and those that have begun construction. This data includes new buildings intended primarily as residential units. The US Census Bureau defines a start as, “Start of construction occurs when excavation begins for the footings or foundation of a building.” 

 

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK

Takeaway: Labor Day makes this week's reading on the labor market not especially useful. Meanwhile, the lateness of the cycle remains the focus.

Recently, we've been writing more frequently about the environment being late cycle. For instance, here's our comparison of the current environment to Taleb's Turkey. This morning's numbers, while very good optically, should be taken with a grain of salt as they reflect the holiday-shortened week and the holiday fell on a different week this year. We'll hold off judgement until we see next week's print.

 

The bigger picture remains that of #tick-tock, tick-tock .... 

 

In energy states, the spread between claims in our basket of energy states and the country as a whole was little changed in the week ending September 5, widening from 9.5 to 10.2.

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims18

 

The Data

Prior to revision, initial jobless claims fell 11k to 264k from 275k WoW, as the prior week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3.25k WoW to 272.5k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -9.0% lower YoY, which is a sequential improvement versus the previous week's YoY change of -6.6%

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims2

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims3

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims4

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims5

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims6

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims7

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims8

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims9

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims10

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims11

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims19

 

Yield Spreads

The 2-10 spread rose 3 basis points WoW to 149 bps. 3Q15TD, the 2-10 spread is averaging 155 bps, which is lower by -4 bps relative to 2Q15.

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims15

 

INITIAL JOBLESS CLAIMS | WAITING FOR NEXT WEEK - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Rate Hike?

Client Talking Points

# VOLATILITYEXPECTATIONS

The VIX index continues to be pushed lower, down -48% from the August 24th highs. OVX, the WTI equivalent, remains at a 50-handle, down -13% from its September 1st highs. The MOVE index is -10% off the August 24th highs in the VIX. The VIX suggests the FED can talk things under control. We’ll see today with the decision at 2:00PM ET and the press conference following.

#FEDERALFUNDS

Probability of a 25 basis points rate hike is at 32% this morning, which suggests a lot of repositioning as the market digests the news in the event of a surprise (What would the VIX do on that?). If not, what does it say about the strength of the U.S. economy? Slower for longer. The traditional trigger for tighter policy is aimed at extinguishing heightening inflation expectations. Yesterday’s CPI print was anything but, printing +0.2% year-over-year for AUG. and -0.1% month-over-month. 

HOUSING

Builder Confidence in September made a new post-crisis high of 62.   From a macro perspective, the gain is interesting as builder confidence has, historically, served as a solid lead indictor for consumer confidence more broadly (which has slide in recent months) and the larger economic cycle.  We continue to think the housing recovery remains early-mid or mid-cycle and the complex should remain a source of solid relative outperformance over the intermediate term. 

 

**Watch a replay of today's special Financials edition of The Macro Show with Financials analyst Jonathan Casteleyn - CLICK HERE

Asset Allocation

CASH 73% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 21% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

MCD is one of Sector Head Howard Penney's favorite names. He thinks McDonald's is finally emerging from the doldrums and is doing everything they need to do to fix the company domestically.

 

Penney believes there is not only a huge inflection point coming for the profitability of the company, but also for their sales. He thinks this means Wendy’s, Jack In the Box, Sonic will suffer a bit as MCD begins to take its market share back.

PENN

Bottom Line here? September regional gaming revenue growth should accelerate meaningfully from August and provide a catalyst for the stock. Our bull thesis on PENN appears very much intact.

TLT

In a higher volatility, growth-slowing environment, you want low-beta exposure (stocks that move less than the market) and a larger allocation to long-term Treasuries.

 

In the recent Macro Overlay video series exclusively for Investing Ideas subscribers, Keith rank-orders our top investing ideas positions from a fundamental macro and style factor perspective (low-beta, big cap liquidity, slower growth):

 

  1. Treasuries (TLT)
  2.  “Something that looks like Treasuries” (EDV)
  3. Gold (GLD)
  4. Low-Beta, Big-Cap liquidity: McDonalds
  5. Low-Beta, Big Cap Liquidity: General Mills

Three for the Road

TWEET OF THE DAY

NEW VIDEO | Why Housing May Be Set To Outperform The Broader Market https://app.hedgeye.com/insights/46379-why-housing-may-be-set-to-outperform-the-broader-market… via @HedgeyeFIG @HedgeyeUSA $ITB #markets

@Hedgeye

QUOTE OF THE DAY

If a man does not know to what port he is steering, no wind is favorable to him.

Seneca

STAT OF THE DAY

On Wednesday the Census Bureau reported that the median American household made just under $54,000 in 2014, essentially unchanged from a year earlier after adjusting for inflation. Nearly 47 million Americans are living in poverty, unchanged since the worst of the recession.


the macro show

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