Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence

Takeaway: Case-Shiller confirms HPI Acceleration. Meanwhile, 3Q15 HVS data shows the beginning of the long awaited rebound in 18-34 YOA homeowership.

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.


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - Compendium 102715


Today’s Focus: August Case-Shiller HPI & 3Q15 HVS 


HVS: Housing Vacancy Survey, 3Q15


We received the Census Bureau's HVS survey data for 3Q15 this morning.  


The HVS survey is timely and widely cited, but it’s volatile and doesn’t always comport cleanly with the more comprehensive annual Census/CPS housing surveys or a common sense reading of reality. 


We take the data with a grain of salt and, while we view the magnitude of change as a distorted reflection of the underlying reality, we view directional changes in the data as a largely accurate depiction of the underlying trend.  


Household Formation:  The yearly net change in Households in 3Q15 was 1.45MM, down modestly sequentially but marking a 4th straight quarter of breakout following a half-decade hibernation in household formation following the great recession. 


The gains were again concentrated on the rental side with 92% of the increase stemming from an increase in renter households.  Notably, however, 3Q15 marked the first time in 6-quarters in which Owner Occupied Households saw positive gains on both a QoQ and YoY basis. The quarterly HH formation trends along with the cumulative HH formation changes by type are shown in the charts below.   


Homeownership:  The National Homeownership Rate bounced off the 48-year low recorded in 2Q, rising to 63.7% in 3Q from 63.4% prior. The seasonally adjusted Homeownership Rate was flat sequentially at 63.5%.  


The one callout is probably the notable increase in the Homeownership Rate among 18-34 year-olds which increased to 35.8% in 3Q from 34.8% prior.


Given that the employment recovery for that age cohort - which lagged the broader employment inflection - is now maturing towards the 3-year mark and has been growing at a premium to the broader average over the TTM, it's not particularly surprising to see upward pressure on ownership rates.  Ongoing improvement in employment/income trends should continue to support rising headship rates with emergent rental demand slowly tricking through to the SF purchase market.  


Again, we don't put significant stock in the precision of the HVS estimates but the data has begun to move directionally.  



Case-Shiller HPI:  August Godot Arrives (kinda)

The Case-Shiller 20-City HPI for August released this morning – which represents average price data over the June-August period – showed home prices rose +0.11% MoM while accelerating +20bps sequentially to +5.1% year-over-year.  On an NSA basis, 18 of 20 cities reported sequential increases (down from 20 last month) while, on an SA basis, 11-cities reported increases (up from 10 prior).  Notably, the Case-Shiller National HPI  (which covers all U.S. Census divisions) accelerated for the 6th consecutive month, accelerating +10bps sequentially to +4.68% YoY.   


Improving second derivative price trends have augured outperformance in the housing complex historically as rising prices are margin supportive and help perpetuate the Giffen Good dynamic that characterizes housing demand. 


The National Case-Shiller HPI has been in accord with the improving price trend observed in the CoreLogic and FHFA series since late 1Q.  The 2nd month of improvement in the 20-City Index in the latest August data provides more solid evidence that the most lagging of the HPI series is (finally) beginning to comport with the broader trend in prices.     


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - HH Formation by Type Cumulative


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - Homeownership Rate 18 34YOA


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - Homeownership Rate National


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - HVS HH formation


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - CS 20 City vs National HPI TTM


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - CS MoM SA


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - CS YoY vs MoM Scatter


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - HPI 3 Series


Case-Shiller HPI | Acceleration Confirmation & Millennial Bunker Emergence - CS vs ITB 




About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.


Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.



Joshua Steiner, CFA


Christian B. Drake


Takeaway: We are flagging JPMorgan (JPM - Score: 95) (short) and Federated Investors (FII - Score: 14) (long) on sentiment and short interest.

This morning we are publishing our updated Hedgeye Financials Sentiment Scoreboard in conjunction with the release of the latest short interest data last night. Our Scoreboard now evaluates over 300 companies across the Financials complex.


The Scoreboard combines buyside and sell-side sentiment measures. It standardizes those measures to an index of 0-100, where 100 is the best possible sentiment ranking and 0 is the worst. Our analysis shows that a contrarian strategy can be employed successfully by taking the other side of stocks with extreme readings in sentiment, either bullish or bearish. Once sentiment reaches these extreme levels, it becomes a very asymmetric setup wherein expectations become too high or too low.  


We’ve quantified the tipping points for high and low sentiment. Specifically, we've found that scores of 20 or lower have a positive, average expected return while scores of 90 or greater are more likely to underperform.


Specifically, our backtest of 10,400 observations over a 10-year period found that stocks with scores of 0-10 went on to produce an average absolute return of +23.9% over the following 12-month period. Scores of 10-20 produced an average absolute return of +11.9%. At the other end of the spectrum, stocks with sentiment scores of 90-100 produced average negative absolute returns of -10.3% over the following 12-months.


The first table below breaks the 300 companies into a few major categories and ranks all the components on a relative basis. The second table breaks the group into smaller subsectors and again gives them relative rankings within those subsectors. 








The following is an excerpt from our 90 page black book entitled “Betting Against the Herd: Generating Alpha From Sentiment Extremes Across Financials.”


Let us know if you would like to receive a copy of our black book, which explains this system and its applications.


BUYS / LONGS: Financials with extremely low sentiment readings of 20 and below on our index (0-100) show strong average outperformance in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 20 or lower rise an average of +15.1% over the next 12 months in absolute terms.   


SELLS / SHORTS: Financials with extremely high sentiment readings of 90 and above on our proprietary sentiment index (0-100) demonstrate a marked tendency to underperform in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 90 or greater fall in value an average of -10.3% over the next 12 months in absolute terms. 






Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT

RTA Live: October 27, 2015



the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Note to the Bullish Cabal: Small Caps Are In Correction Territory | $IWM

Note to the Bullish Cabal: Small Caps Are In Correction Territory | $IWM - Small cap canaries 09.23.2014


In a note to subscribers this morning, Hedgeye CEO Keith McCullough offers a brief update on the Russell 2000.  


"The Russell 2000 failed at both TRADE (1175) and TREND (1199) resistance and remains in draw-down mode -10.5% from its year-to-date (and bubble) peak - one of the best pure play ways to play a #LateCycle slowdown in the USA is via Russell's domestic revenues." 


Note to the Bullish Cabal: Small Caps Are In Correction Territory | $IWM - 10 27 2015 russell




October 25-28: VRMA (Vacation Rental Manager's Association) Annual Conf -  New Orleans

October 27: Macau Studio City opens

October 27 8:30AM: WYN 3Q CC - , PW: WYNDHAM

October 27 9:30AM: STAY 3Q CC - , PW: N/A

October 28 10:00AM: HLT 3Q CC - ; PW: 42576772

October 28 1:00PM: HOT 3Q CC - , PW: 44844364

October 28 5:00PM: DRII 3Q CC - 1- , PW:  56485276

October 29 8:00AM MGM 3Q CC -

October 29 9:00AM: HST 3Q CC - , PW: N/A

October 29 10:00AM: GLPI 3Q CC - , PW: N/A

October 29 10:00AM: MAR 3Q CC - , PW: 39462855

October 29 10:00AM: PNK 3Q CC - , PW: 68847879


MPEL - Not having junket rooms at Studio City’s casino was a “business decision” driven mainly by the size of the gaming property’s new-to-market table allocation from the Macau government, said a co-chairman of its main promoter Melco Crown Entertainment Ltd on the official opening day on Tuesday. 


Ho added that once it became known that Studio City was to get a new-to-market allocation of 250 tables – 200 for use from when the casino opened on Tuesday afternoon and a further 50 from January – “it was a no brainer for us that it was going to be all mass [table gaming]. If it was 400 tables [in the allocation] maybe there would have been a very small portion for VIP [gambling]. But we are where we are.”


Takeaway: Why start with a business that will decline? All Mass tables increases the probabality of more Mass promotional activity


LVS - Two men have been arrested on suspicion of complicity in the stealing of $42,908-worth of gaming chips from the casino at the Marina Bay Sands resort in Singapore.  The city-state’s Today newspaper reported that the suspects – aged 36 and 40 – were detained by officers from the Casino Crime Investigation Branch. The property was developed and is managed by Las Vegas Sands Corp.



WYNN - Macau junket operator Dore Entertainment Co Ltd is shutting down one of the three VIP rooms it promotes at casino hotel Wynn Macau. The news was confirmed to GGRAsia by Wynn Macau Ltd, which owns and manages the property. We can confirm that Dore will return one of their three junket rooms at Wynn Macau on October 31,” a company spokesperson told GGRAsia. “This is in accordance with Dore’s plan to scale down their business operations,” the spokesperson added in an emailed reply.


Takeaway: It had originally been reported that all of Dore's VIP rooms would be closed. 


AIRBNB - Airbnb is testing a new service that will give people something to do in new cities. It’s called Journeys, and it’s currently available as invite-only to people who want to visit San Francisco in December, but haven’t yet booked their trips.  Journeys offers full three-to-five-day travel plans to its selected testers. Through it, Airbnb will offer a free meal during each day; planned excursions devoted to San Francisco’s nightlife, natural wonders, or food scene; agent-selected rooms; and a Lyft ride from the airport to wherever the person is staying. These trips will reportedly cost between $500 and $750 for the individuals invited to use it.


Takeaway: More services, more competition from Airbnb


RCL - Australia has been chosen as the unusual world cruise departure port for Azamara Club Cruises' first-ever foray into a global voyage, which will end in London, U.K. In 2018 the 686-passenger Azamara Journey will sail a 102-day journey from Sydney's Opera House to London's Tower Bridge, docking overnight at the famous landmarks in signature Azamara style.



RCL - COO Adam Goldstein disclosed a sale of 90K shares.  Goldstein beneficially owns 253K shares of common stock direct following the transaction. 


Takeaway: That's a lot of stock but insider selling usually only means the stock has done well


PBoC - Cuts 7-day reverse repo rate by 10bos to 2.35%. 


Smoking Ban - Members of the Legislative Assembly and representatives of the casino operators and the gaming trade unions will meet in the middle of next month to discuss the bill that would ban smoking in casinos, according to the chairman of the assembly committee handling the bill, Chan Chak Mo.  Mr Chan told reporters that his committee had no firm stance on the ban.


Takeaway: Any further smoking ban not likely to go into effect until 2016


Pop-Tart Strategy

"I would love to be in the room watching someone who needs to consult these directions."

 - Brian Regan


There are actual directions for how to eat a Pop-Tart. 


Apparently we’ve devolved to the point  that “remove pastry from pouch” needs to be an actual instruction. 


And yes, it says microwave on high for 3 seconds  … As in "three" seconds. 


Pop-Tart Strategy - 10 27 EL


Back to the Global Macro Grind….


The Pop-Tart bit isn't mine but it's great (you can watch it HERE, it’s worth your 3 minutes). 


In complexity, proper Pop-Tart preparation rivals what has been perhaps the most profitable macro strategy of the last half-decade.


Stop me if you’ve heard this one:   


Rotate the QE (Euro/Yen => $USD  => Reflation  => Growth/Inflation Expectations  => Bonds 


In other words,


When Draghi or Kurodo have the QE ball => Euro/Yen Go Down => the Dollar Goes Up => things priced in those dollars go down => Inflation expectations and OUS growth expectations flag => the market prices in those expectations and bonds get bid (again).


Yup, that’s it. Pop-Tart macro strategy alpha fully-baked in 3 seconds.   


With global inflation expectations priced in dollars and central planning centricity defining markets in the post-crisis period, that QE-Currency connection has only played out “like infinity times” (my 5-year olds new favorite line) over the last 6 years. 


Moving on.


Keith has provided some high level earnings season updates the last couple weeks.  Let’s take a quick look below the flaky, frosted surface of earnings management to the thin layer of toasted growth at the center:


3Q Earnings Scorecard: With ~40% of SPX constituent companies having reported earnings for 3Q, the growth data remains dismal – particularly for a private sector economy purportedly still flirting with a multi-year march higher in policy rates.     

  • Sales/EPS:  In the aggregate, Sales growth is running -3.08% while Earnings growth is tracking at -3.31%.  Granted, the weakness is once again centered on the energy and the industrials complex but those sectors don’t operate in a vacuum and that softness has begun to creep in across the Financials, Staples & Tech sectors as well.
  • Beat/Miss:  Only 43% of companies have beaten topline estimates while 75% (in-line with recent qtr averages) have beaten on EPS.  Indeed, despite 9-months of progressive deflation in consensus estimates, a full 0% (as in “zero”) of Materials and Utilities companies have managed to best sales expectations thus far in 3Q.  Again, the weakness is not just confined to the energy/commodity space – across Consumer Discretionary, Staples and Financials less than 46% of companies have beaten revenue estimates.  A topline recession with broad margin contraction is not a fundamental factor cocktail supportive of resurgent capex and gangbuster hiring. 
  • Missing’s Mattered: The Macro has been driving the fundamentals but accurately forecasting those fundamentals has mattered again as we’ve seen sector variance increase and stock picking has re-emerged as an alpha driver. 75% of companies that have missed earnings expectations have gone on to underperform the market by -6.7% on average while 70% of the companies that have beaten have outperformed the market by +3.7% over the subsequent 3 trading days. 
  • Operating Performance:  Taking a 2nd derivative view of the data, operating momentum has remained decidedly underwhelming with just 43% and 45% of companies registering sequential acceleration in sales and earnings growth, respectively. More than 50% of companies have reported sequential contraction in operating margins as well.  Our operating performance scorecard for 3Q to-date can be seen in the Chart of the Day below. 


What about housing?  You guys like the housing trade for 4Q but that New Home Sales print yesterday was a complete brick.


Yea it was. We like housing currently and we are more than willing to pivot on our view if the data supports it (recall, we were bearish in 3Q) - but the current data is noisy and incongruent.  Here’s the summary contextualization,  hopefully you’re well caffeinated: 


TRID (Tila Respa Integrated Disclosure) – which was a regulatory change in mortgage disclosure requirements and required a large-scare overhaul of lending and mortgage financing systems – went into effect on October 3rd.  Mortgage Purchase Applications which had been running +2.41% MoM and ~+20% YoY in September, shot up to +50% YoY to close out September as demand was pulled forward ahead of the implementation.  


In other words, according to the MBA (Mortgage Bankers Association), Mortgage Purchase Demand (which includes mortgages for both New and Existing Homes) was up big in September with the bulk of the increase stemming from the regulatory distortion.


In contrast, the Census Bureau data for the same period showed New Home Sales declining -11.5% MoM and decelerating to +2% YoY - marking the lowest level of sales in 10 months and well off the +20% year-over-year pace of growth averaged YTD.  


Two data sets, two completely different conclusions on the sequential direction of housing demand.  They can’t both be correct.  


The lone avenue for reconciling the difference is if all of that excess purchase demand reported by the MBA was concentrated in the existing market.  That seems unlikely.


But we won’t have to wait long for additional clarity as Pending Home Sales (which represents signed contract activity in the existing market) for September will be released on Thursday.  We’re content to wait on that before taking a more convicted view on the state of underlying demand or the distortive effects of TRID implementation. 


The evolution of social media and the democratization of information flow has been great.  A byproduct of that evolution, however, has been an exponential increase in noise – the informational/analytical equivalent of empty calories. 


Filter you’re source menu by accountability, transparency and analytical density.


Better yet, be your own source.


Our immediate-term Global Macro Risk Ranges are now:


RUT 1135--1175

UST 10yr Yield 1.98-2.09%

VIX 13.56-19.77 

Oil (WTI) 43.28-46.13 

Gold 1151-1175 


You don’t get the brain you want by not using the one you have,


Christian B. Drake

U.S. Macro Analyst


Pop-Tart Strategy - EL 10 27

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