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INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES

Takeaway: Post-holiday claims reflect ongoing strength in separations while the rate of improvement remains consistent with the late cycle environment

While durable goods, business investment, net exports and goods inflation remain in discrete deceleration alongside the retreat in global growth, the domestic labor market continues to tread a path of late-cycle improvement. 

 

As we’ve highlighted, Initial Jobless Claims have been the most consistent, lead labor market indicator for the economic cycle with peak improvement occurring ~7 months ahead of the economic cycle peak and coincident with or slightly ahead of the equity market peak.  

 

As it stands, rolling claims peaked 7-wks ago and while +267K in the latest week remains strong (and largely free of holiday related noise), from a rate-of-change perspective, growth will continue to converge towards 0% over the next couple months as we traverse trough comps.  From there, monitoring marginal changes becomes a lower-intensity proposition as positive growth signals deterioration, at the margin. 

 

In short, the labor market data remains trend consistent and somewhat of an insular island of strength and while there remains some modest runway left for further improvement, the late-cycle clock tick is getting louder.

 

Looking across the energy states, indexed claims in the chart below increased week over week from 94 to 96 while the index for the whole country fell from 84 to 81 in the period ending September 12. The spread between the series increased from 10 to 15.

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims18

 

The Data

Initial jobless claims rose 3k to 267k from 264k WoW. The prior week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -0.75k WoW to 271.75k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.8% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.0%

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims2

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims3

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims4

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims5

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims6

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims7

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims8

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims9

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims10

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims11

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims19

 

Yield Spreads

The 2-10 spread fell -3 basis points WoW to 146 bps. 3Q15TD, the 2-10 spread is averaging 154 bps, which is lower by -4 bps relative to 2Q15.

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims15

 

INITIAL JOBLESS CLAIMS | CONVERGENCE CONTINUES - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 

 

 


RTA Live: September 24, 2015

 

 


Real Conversations | Doug Cliggott: ‘An Uncomfortably High Probability of a Significant Correction’

During this wide-ranging, recent Real Conversations interview, prominent Wall Street equity strategist Doug Cliggott sits down to discuss his current market and economic concerns. Cliggott, who was formerly U.S. equity strategist at Credit Suisse and chief investment strategist at J.P. Morgan, shares his ursine investment outlook and cautions against complacency with Hedgeye’s Director of Research Daryl Jones.


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Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

PIR | LONG WALK ON A SHORT PIR

Takeaway: This is a great name to buy on an ugly print. Ugly qtr, but financial recovery finally within reach.

We’re not expecting a whole lot of positive news from PIR’s 2Q print (today after the close). EPS is a moving target, and guidance will be light. But when all is said and done we think that the results will show that the financial and operational inflection point for this beaten-down value stock is finally within reach. Are we concerned about a headline miss later today? Yes. We were well aware of these concerns when we added PIR to our Best Ideas list on August 31. Furthermore, we have yet to talk to anyone about this name that is not expecting an ugly quarter. Several analyst notes have already come out calling for a miss, and on top of that, short interest has raced up to 16% of the float – a four-year peak. We think they’ll ultimately be proved wrong.

 

PIR | LONG WALK ON A SHORT PIR - PIR shortinterest

 

A key consideration is that CFO Jeff Boyer will handle guidance for the first time after joining the company in late July. It’s not entirely clear how he will handle guidance…but we can’t imagine that he’ll want high targets his first year on the job. We’ve heard this concern from bears as well “new CFO will lower the bar”. Maybe we’d be concerned if the stock was up 20% over the past quarter, but we’re looking at quite the opposite – a 26% decline since the last earnings report in mid-June, and 12% over the past month.  So will guidance be lower? Probably. But it’s very important to note that Boyer is likely to lower because he wants to, not out of necessity. 

 

Why We Like It – PIR is a beaten-up, ugly value stock…there’s no two ways about it. But with the stock trading at just 0.5x sales – a level it hasn’t sustained in six years -- we think there are two primary questions to ask. 1) Are we going into a major recession? and 2) Is management going to do anything more destructive that would otherwise emulate a major recession? If you answer ‘No’ to both of those questions, then we think it’s a very good risk/reward to buy the stock with $3-$4 down and $20 upside.

 

PIR | LONG WALK ON A SHORT PIR - PIR financials

 

Our Answers:

1) We have some major questions marks as it relates to the economy, but we’re not calling for an all-out recession.

 

2) This is a company that is no stranger to execution issues, but we don’t think that management is about to do anything more that would cause a downturn in the business (especially w/ new CFO taking the seat in late July). Quite the opposite, in fact. Consider this…

  • Over the past three years, PIR gave up 5 points of margin as it played catch-up with its e-commerce business, which stood at only 1% of sales in 2013. Today it is pushing 17%. E-comm will continue to be a headwind as it grows to the mid-30s (about 130bps of dilution over 4 years), but the combination of merch margin recovery and store base rationalization should more than offset the dilution. We think that ~300bps of the margin recoverable.
  • Interestingly enough, in our survey in this report, PIR’s categories ranked as the ones where consumers are most apt to switch sales online. If there is any company that should have invested in e-comm, it is PIR.
  • We’ve had three straight years of elevated capex as the company built out e-comm capabilities. That rolls off this year, with asset consolidation (closing stores) and multi-year margin tailwinds takes RNOA from trough levels at 19% in FY16E to 31% by 2020. That’s a long tail, but even the slightest sign that we’ve found the bottom should make this stock rally.

 


EVENT (TODAY) – P & Web IV: What You Need to Know

Takeaway: Join us TODAY at 12pm and 2pm EDT for a two-part event on the implications of Web IV on P. Dialings instructions below

EVENT (TODAY) – P & Web IV: What You Need to Know - Pandora cartoon

 

 

We will be hosting a two-part event TODAY at 12pm and 2pm EDT to discuss both the bull and bear cases.

  1. P: Webcaster IV = Powder Keg (12pm EDT) – Our bearish thesis discussing the implications of the Web IV outcome on P’s business model.
  2. Speaker Series: David Oxenford, Counsel to Webcasting Companies (2pm EDT) – Fire-Side Chat on the relevant Web IV statutes and the Services' arguments.

 

KEY TOPICS WILL INCLUDE

 

P: Webcaster IV = Powder Keg (12pm EDT)

  • Challenging Business Model: Limited operational leverage despite operating under lower Pureplay rates
  • Pandora vs. SoundExchange: A review of the Web IV proceeding, the key tenets of each of their arguments, and why P is losing the key debate
  • Powder Keg: We’ll detail a range of potential outcomes, and the limited wiggle room P has without having to restructure its business model
  • Fool's Gold: Why the Copyright Register's decision is not a preliminary victory for P; all it means is that P is just treading water.

 

Speaker Series: David Oxenford, Counsel to Webcasting Companies regarding CRB proceedings (2pm EDT)

  • Introductory Discussion: Explanation of the relevant statutes regarding the Web IV proceeding (including where may be wrong)
  • Services vs. SoundExchange: Discussion regarding the Services’ primary arguments in the Web IV proceeding
  • Anonymous Q&A: 30-minute session to field your questions

 

Dialing instructions for both calls are below.  Let us know if you have any questions beforehand.   

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 

 

Participating Dialing Instructions

  • Toll Free:
  • Toll:
  • Confirmation Number: 13620143
  • Materials: CLICK HERE

 


CHART OF THE DAY: Wait! $90,000,000,000,000 Yen Ain't Working? Cue the Arrows Abe!

Editor's Note: The chart and brief excerpt below are from today's Early Look which was written by Hedgeye CEO Keith McCullough. Click here if you would like to join our contrarian team and begin getting a step or two ahead of consensus.

 

CHART OF THE DAY: Wait! $90,000,000,000,000 Yen Ain't Working? Cue the Arrows Abe! - z ben 09.24.15 chart

 

...“So,” since 90 TRILLION Yen in money printing + the 3 arrows of “Abenomics” isn’t working, what did the Japanese announce overnight? “Three More Arrows”!

 

I seriously couldn’t make that up if I tried. And if a spend more than another sentence on what the 3 “new” policies are, today’s note is going to turn into a joke (1. “Stronger Economy” 2. “Welfare” and 3. “nominal GDP target of 600T Yen”).

 

Best of luck with that, dudes.

 


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