"...If the new bull market thesis is getting back to break-even for 2015, that’s cool. I get it," Hedgeye CEO Keith McCullough wrote in today's Early Look. "Everyone who is in the business of being perma-long growth expectations needs to start somewhere. Sort of like this bear market – she’s just getting started."
Takeaway: The labor market just completed its 19th month of sub-330k claims. History suggests we're getting closer to recession.
Initial claims were strong last week. The seasonally adjusted figure came in at 263k, well below the 330k Rubicon, -14k below the prior week prior to revision, and -8k below expectations. For context, the jobs market just completed its 19th month of strong, sub-330k claims, as the chart below shows. Importantly, as the chart below also shows, the last three cycles saw claims stay below 330k for 24, 45 and 31 months before the economy entered recession. The average duration of those three cycles was 33 months (max: 45, min: 24). That puts us 5 months from the min, 14 months from the average and 26 months from the max.
Indexed energy state claims in the chart below expanded in the week ending September 26 while the U.S. as a whole decreased. The spread between the two series increased to 18 from 16 in the prior week.
Prior to revision, initial jobless claims fell 14k to 263k from 277k WoW, as the prior week's number was revised down by -1k to 276k.
The headline (unrevised) number shows claims were lower by 13k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3k WoW to 267.5k.
The 4-week rolling average of NSA claims, another way of evaluating the data, was -11.0% lower YoY, which is a sequential improvement versus the previous week's YoY change of -8.3%
The 2-10 spread rose 3 basis points WoW to 144 bps. 4Q15TD, the 2-10 spread is averaging 143 bps, which is lower by -11 bps relative to 3Q15.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
TICKERS: AWAY, CCL, NCLH, UBER
- Oct 8: Hedgeye Macau call 2:30pm
AWAY- HomeAway announced the acquisition of vacation rental startup Dwellable. Terms of the deal were not disclosed, but CEO Kirby Winfield said it was a positive outcome for investors. Dwellable raised just $2 million in funding — a pittance compared to other heavily-funded competitors in the online vacation rental arena.
CCL - Australia's P&O and Princess ships are set to be reshuffled to meet increased demand for local holidays at sea, Carnival Australia announced yesterday. Princess Cruises' 2,000-passenger Dawn Princess will move to the P&O fleet in May 2017, while Golden Princess will remain in Australian waters throughout 2017 (instead of returning to Japan) alongside Sun Princess and Sea Princess.
NCLH - Oceania Cruises will be offering 60 new itineraries across six continents for 2016/2017. Never-before-sailed ports of call for the line include Burnie, Tasmania; Ensenada, Mexico; Port Moresby, Papua New Guinea; and Harvest Caye, Belize. Sirena will debut in April and take on Mediterranean Itineraries before heading to the Caribbean and Pacific for the winter.
UBER - Uber is setting up shop in the Shanghai Experimental Free Trade Zone by incorporating a company called Shanghai Wubo Information Technology with registered capital of RMB2.1 billion (approx: $33 million). The company also announced it would invest up to RMB6.3 billion (approx: $991 million) to maintain its long-term and sustained development in China and is now preparing to apply to become a fully-licensed car-hire platform.
Golden Week Update- In the first six days of the National Day golden week of holidays in the mainland, Macau had 938,197 visitors, the Macau Government Tourist Office says. The office says mainlanders made up 85.2% of the visitors.
The total number of visitors was 8% higher than in the equivalent period last year and the number of mainlanders visiting was 6.3% higher.
Takeaway: Month to date GGR is still down YoY but we think the numbers will look much better than trend when we get them next week.
REGIONAL REVENUES (SEPT):
- Illinois SS GGR: -5.4% YoY
- PENN SS GGR: +0.6% YoY
- Ohio SS GGR: +5.3% YoY
- PENN SS GGR: +10.0% YoY
Takeaway: IL was a bit of a disappointment but the other states have come in strong, as we expected. PENN crushed it in its most important state (Ohio) and held up better than most in IL.
Risk Managed Long Term Investing for Pros
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.
Takeaway: Chip opines on LULU - company needs a change of address. Amazon officially launches 'Handmade' vs ETSY.
LULU - Chip Speaks on LULU
This was probably the least controversial and most candid public comment Chip has made in over 3 years. His comments on former CEO Day, apology for fat shaming his customers on Bloomberg, and thoughts on the present state of the company don't surprise us in the least. He wouldn't have stepped down from the Board in February or announced that he was selling the rest of his stake in LULU if he felt otherwise.
As far as his comments on UA are concerned. Yes, UA has a market cap 3x LULU today and three years ago UA was in LULU's rearview. But, that is the inherent problem with both Chip's vision for the company (he wanted to switch the brand identity from yoga to 'mindfulness') and it's current distribution/brand segmentation. To even compare the two, LULU would need to double down on its ability to flow product more accurately throughout a multi-channel distribution platform, while maintaining price integrity, and its premium brand status
Separating the lululemon brand from its Founder was a win for the board, there is still a lot of wood to chop in Vancouver. We think LULU needs a change of address (not literally). This is an extremely powerful brand in a solid, yet increasingly competitive, space. LULU needs to not only be a great brand, but a great company. Then and only then will it be a great stock. We think management is coasting on the power of the brand, by tweaking a legacy operating plan, blindly opening stores, and hoping that nothing else goes wrong. Hope, however, is not a profitable growth process.
AMZN, ETSY - Amazon Handmade, a competitor to ETSY, has been officially launched. The concept connects makers of handcrafted goods with Amazon shoppers. Select sellers have been using the platform for several weeks.
National Retail Federation Forecasts Holiday Sales to Increase 3.7%, vs +4.1% Last Year
AMZN - Jet.com, which launched July 21, has decided to abandon its membership fee model in hopes of attracting a broader customer base. The $50 annual fee was planned to be the profit center for the company while selling at ultra thin margins.
TJX - The TJX Companies Announced Ernie Herrman as CEO, current CEO Carol Meyrowitz to Become Executive Chairman
Uniqlo - Fast Retailing Warns of Slowing Profit, Sales Growth
Gilt Groupe to lay off 47 staff members as part of a restructuring to be cash flow positive.
TLYS - Edmond Thomas appointed President, CEO, and Board Member replacing Daniel Griesemer.
AMZN - Amazon Prime Now expands 1hr and 2hr delivery in London market. London was the first international Prime Now city launched back in June.
Editor's Note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Keith has been writing this morning market commentary for many years. Click here to subscribe and find out why so many smart investors make it the first thing they read every morning before market open.
"...Today, at 1PM EST my research team and I will walk you through our 60 slide Q4 Global Macro Themes deck.
#Crashing: Definitive crashes have occurred across many global macro markets in recent months. Those market participants on the wrong side of growth slowing and deflation are feeling the most pain ... Is the U.S. equity market next in line?"
“There’s no bear like an old bear.”
Oh, to be a young cub again… what would consensus do to be able to go back to the April to July period of 2015 and have sold higher?
While most #LateCycle growth expectations in macro markets peaked in April, the US stock market peaked in July as US Treasury Yields were putting in their last head-fake of a “breakout.” That makes this bear market in growth expectations relatively young.
And, yes, I get the hedgie-perf-anxiety-disorder (#HPAD) that helped lead this week’s bounce to lower-highs. It is what it is – kind of like expecting GDP and the US 10yr would be > 3% in 2015. It’s entertaining to watch the storytelling of it all.
Back to the Global Macro Grind…
Today, at 1PM EST my research team and I will walk you through our 60 slide Q4 Global Macro Themes deck. As always, we’ll start the conference call by reviewing our most recent Q3 Macro Themes which were #timestamped in July as follows:
- #ConsumerCycle Slowing
Themes 2 and 3 became clearer to consensus as the quarter played out. Most investors realize that the Slower-For-Longer case that was being priced into both the stock and bond market had plenty of confirming economic data to support it.
Theme 1 was less convincing… until the most recent US jobs report confirmed the top in the #LateCycle US Employment, that is. And, perversely, it was that rancid employment print that gave birth to this 1-week old baby bull in “reflation” expectations.
After all, there’s no bull like the Old Wall’s…
And Dollar Down (on Dovish Fed expectations post the jobs print) + Rates Down ripped both #YieldChasing and everything linked to Down Dollar Reflation (Commodities, Energy Stocks, Russia, etc.) higher.
Confusing a 1-week or 1-month old bull in “reflation” with accelerating demand was actually one of the biggest mistakes Consensus Macro made in 2015. That’s what had chart chasers buy the July top, don’t forget.
So today’s call won’t focus so much on that narrative fallacy as it will the core of what’s been our bearish growth theme all along – this young bear is about to go into her “mid-cycle” maturation process!
Just to give you a sneak-peak on why the “mid-cycle slowdown” thesis is probably as wrong as the bond market thinks it is (*note: not one of the strategists calling this a mid-cycle slowdown was calling for a slow-down of any kind 9 months ago, but they seem quite sure it’s not #LateCycle), here are our Top 3 Global Macro Themes for Q4 of 2015:
- #SuperLateCycle (USA): Slowing growth typifies the twilight of an economic expansion and negative 2nd derivative trends are creeping in across much of the domestic fundamental data. From labor and manufacturing markets to consumer and business confidence, leading indicators are beginning to roll as the late-cycle moves past peak. We'll detail why Slower-And-Lower-For-Longer remains the call.
- #GlobalSlowing: With the Street, IMF, World Bank and OECD all still forecasting global growth of around 3% for 2015, we find it appropriate to reiterate our call for global growth to come in at or below half that rate. Moreover, while China's August CNY devaluation effectively made our #EmergingOutflows theme a consensus bearish cog in the global economic outlook, we do not think investors are appropriately positioned for a likely trend of negative revisions to the respective growth outlooks in the U.S., Eurozone and Japan throughout the balance of the year.
- #Crashing: Definitive crashes have occurred across many global macro markets in recent months. Those market participants on the wrong side of growth slowing and deflation are feeling the most pain. Crashing inflation expectations are perpetuating the pain across all asset classes and sectors levered to unrealistic growth expectations (energy, industrials, materials), as well as across the high-yield bond market, commodity markets, commodity currencies. Is the U.S. equity market next in line?
After adding the SP500 (SPY) to our Best Short Ideas Short list in July (we summarize our Themes each quarter with our best long/short ideas across our TRADE, TREND, and TAIL durations), we’ll reiterate that call again today.
If you’re an intermediate to long-term investor, you should be well equipped to risk manage these intermediate-term TREND themes. If you’re more of a chase the daily emotion of the S&P Futures type of a guy/gal, I’ll give you some risk ranges for that too (no immediate-term support to 1860 SPX).
If the new bull market thesis is getting back to break-even for 2015, that’s cool. I get it. Everyone who is in the business of being perma-long growth expectations needs to start somewhere. Sort of like this bear market – she’s just getting started.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.96-2.09%
Oil (WTI) 46.02-48.99
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer