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November 3, 2015

November 3, 2015 - Slide1

 

BULLISH TRENDS

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BEARISH TRENDS

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November 3, 2015 - Slide11

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Cartoon of the Day: Hail Mary Bubble!

Cartoon of the Day: Hail Mary Bubble! - bubble cartoon 11.02.2015

It's going to be very interesting to witness how this bubble will ultimately end. In many ways, what's going on today is actually worse than at the prior two U.S. stock market bubble tops of 2000 and 2007.


What Gold and Bond Prices Say About a December Rate Hike

 

During this brief excerpt from The Macro Show this morning, Hedgeye commodities analyst Ben Ryan and CEO Keith McCullough weigh in with their thoughts on current market signals and what they portend from the Fed.

 

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

 

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Early Look

daily macro intelligence

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.

Recession Coming? McCullough and Hilsenrath Square Off

In a spirited economic debate on Fox Business' Mornings With Maria today, Hedgeye CEO Keith McCullough and Wall Street Journal Chief Economics Correspondent Jon Hilsenrath discuss whether the U.S. is headed toward recession.

 

Click HERE to watch.

Recession Coming? McCullough and Hilsenrath Square Off - 11 2 2015 keith fox


Retail Callouts (11/2): Retail Idea List, Labor Market Tightening, COLM, M, TGT, WMT, KSS

Takeaway: COLM Added to Short Bench. Holiday hiring runs into tight labor market.

Hedgeye Retail Idea List

Retail Callouts (11/2): Retail Idea List, Labor Market Tightening, COLM, M, TGT, WMT, KSS - 11 2 2015 chart1

 

This Week's Changes

Columbia Sportswear: Added to Short Bench. It's admittedly early to short COLM, especially in light of such healthy sales, inventory and margin trends that COLM reported last week. But...the company benefitted from two extreme winters, and the likelihood of a third is slim. Management says it does not need one. But with inventories already elevated in the channel, and with the likelihood of so many consumers already having stocked up on boots and puffy jackets in the past two years, we think order trends are more likely than not to slow (or margins weaken -- or both). As a kicker, the company has seen notable success with its boot/wedge business. We actually did not know that this was a 'thing', but by the sound of management on the conference call, they did not either. This will be a tough business for COLM to anniversary in another nine months. So all-in, it's early to short this one. But at 21x earnings and near 10-year trough short interest, we think this one is definitely bench-worthy.

Retail Callouts (11/2): Retail Idea List, Labor Market Tightening, COLM, M, TGT, WMT, KSS - 10 30 15 Chart3

 

M, TGT, WMT, KSS - Several retailers including Macy's, Target, and Toys R Us noting labor market tightness.  The companies are taking steps such as increasing hours of current employees, and offering higher pay to attract seasonal employees.

(http://www.wsj.com/articles/retailers-work-harder-to-lure-holiday-employees-1446424171)

A 5.2% unemployment rate and the largest retailer in the space taking up the ante chip on wages for entry level employees to the tune of $5400 = a difficult labor market anyway you slice it. So many retailers seem to have blown this off thinking that it’s really not a big deal, but rather a WMT PR stunt that won’t affect them. It may be a stunt, but when the biggest retailer in the world raises the minimum wage to $10.00, it is a big deal for everybody. We’ve heard half a dozen CEO’s say “We already pay above minimum wage, so it’s not a big deal.”  Or in Kohls’ case, “Our employees love to work, so we don’t have to pay them more.”  We understand that the companies can’t negotiate wage increases with employees through Wall-Street conference calls. But there will be an impact to almost everyone who sells to the low/mid-level consumer. That's kicked into high gear in October as retailers prepare for Holiday.

 

AMZN - Amazon announces Black Friday deals from now until Dec 22nd.  Prime members to have exclusive early access to more than 30,000 lightning deals.

(http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2104921)

 

AMZN - Amazon ending Amazon local and Amazon Payments card reader services.

(http://www.ecommercebytes.com/cab/abn/y15/m11/i02/s03)

 

ETH - Ethan Allen reports record orders for month of October 2015, notes impact of shift in sale calendar.

(http://phx.corporate-ir.net/phoenix.zhtml?c=81552&p=irol-newsArticle&ID=2105025)

 

WBA, RAD - Walgreens to divest upwards of 1000 stores as part of Rite Aid acquisition.  Walgreens operates 8173 stores while Rite Aid has 4561 stores.

(http://www.chainstoreage.com/article/wba-divest-many-1000-stores-secure-rite-aid-deal-approval)

 

CVS - Omnicare was served with an administrative subpoena by the DEA. The subpoena seeks documents related to controlled substance policies, procedures, and practices at eight pharmacy locations from May 2012 to present.

(http://www.sec.gov/Archives/edgar/data/64803/000006480315000064/cvs20150930-10q.htm)

 

Fendi Unveils New Store Concept in Miami

(http://wwd.com/business-news/retail/fendi-new-miami-store-concept-10271334/)

 


MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH

Takeaway: Investors continue to weigh easy monetary policy against concerns about slowing growth.

 MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM11 2

 

Key Takeaway:

Easy central bank policy continued to help offset economic growth concerns last week. While U.S. third-quarter GDP came in at a low 1.5%, it only added to investor optimism about the Federal Reserve keeping rates near zero. Investor reaction was such that the TED spread fell an impressive -7 bps to 25. Additionally, Chinese bank CDS continued to tighten while the Chinese interbank rate dropped another -11 bps following the PBOC announcing it would cut rates and reserve requirements. This was in spite of the slowest GDP growth since the financial crisis. Our warning of caution: growth is slowing.

 

Given investors' positive reaction to central bank policy, our heatmap below is predominantly green for both the short and intermediate terms. Long-term readings are mixed.

Current Ideas:


MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 4 of 12 improved / 0 out of 12 worsened / 8 of 12 unchanged
• Intermediate-term(WoW): Positive / 7 of 12 improved / 2 out of 12 worsened / 3 of 12 unchanged
• Long-term(WoW): Negative / 2 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM15 2

 

1. U.S. Financial CDS – Swaps tightened for 13 out of 27 domestic financial institutions. Reaction was positive to the Federal Reserve's announcement that it would keep rates near zero and the subsequent low GDP reading of 1.5% with the median CDS spread tightening from 78 to 76 bps.

Tightened the most WoW: MMC, MBI, AXP
Widened the most WoW: CB, ACE, AIG
Tightened the most WoW: MMC, TRV, ALL
Widened the most MoM: CB, RDN, GNW

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM1

 

2. European Financial CDS – Swaps mostly widened in Europe last week, although the movement was muted. The median spread held steady at 75 bps.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM2

 

3. Asian Financial CDS Chinese financial swaps continued to tighten, following the PBOC's decision to cut interest rates and reserve requirements in the prior week.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM17

 

4. Sovereign CDS – Sovereign Swaps mostly tightened over last week. However, Portuguese swaps widened as the country's prime minister was sworn in for a second term as the head of a minority government that is expected to last less than two weeks given challenges from the socialist majority.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM18

 

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM3

 

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week; Brazilian swaps, however, backed off -15 bps from their recent highs.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM16

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM20

6. High Yield (YTM) Monitor – High Yield rates were unchanged, ending the week at 7.39%.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index fell 3.0 points last week, ending at 1846.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM6

8. TED Spread Monitor  – The TED spread fell 7 basis points last week, ending the week at 25 bps this week versus last week’s print of 32 bps.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM7

9. CRB Commodity Price Index – The CRB index was unchanged, ending the week at 196. As compared with the prior month, commodity prices have increased 0.8%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 12 bps.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index fell 11 basis points last week, ending the week at 1.80% versus last week’s print of 1.91%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM10

12. Chinese Steel – Steel prices in China rose 0.6% last week, or 12 yuan/ton, to 2150 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM12

13. 2-10 Spread – Last week the 2-10 spread tightened to 142 bps, -3 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM13

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.1% upside to TRADE resistance and 2.8% downside to TRADE support.

MONDAY MORNING RISK MONITOR | EASY MONEY VS SLOWING GROWTH - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


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