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Purchase Apps | October = Underwhelming

Takeaway: Post-TRID October has been underwhelming as mortgage purchase apps track ~5% below both August and 3Q15 levels of activity.

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.

 

Purchase Apps | October = Underwhelming - Compendium 110415

 

Today's Focus: MBA Mortgage Applications

 

Purchase Demand declined -0.6% week-over-week while decelerating -300 bps to +19.3% year-over-year.

 

The latest weekly data is largely uneventful but, on the margin, the last three weeks of October have seen a modest pullback in activity relative to both September and recent quarter averages.  Excluding the weeks immediately prior to and post TRID implementation, purchase demand in October is tracking -5.6% and -4.5% relative to August and the 3Q15 average (see 1st chart below).  Given the progressively easier back half comps, growth has remained solid and steady on a year-over-year basis at ~+20% YoY.    

 

Meanwhile, rates on the 30Y FRM contract moved back above 4%, rising +3bps in the latest week as the bond market bid both the short and long end higher in response to the rhetorically hawkish commentary out of the FOMC October meeting. At current levels, rates are in-line with the 2015 average of 4.02% and below the 4.35% average for 2014.  

 

 

Purchase Apps | October = Underwhelming - Purchase 2015 Monthly

 

Purchase Apps | October = Underwhelming - Purchase 2013v14v15

 

Purchase Apps | October = Underwhelming - Purchase   Refi YoY

 

Purchase Apps | October = Underwhelming - Purchase Index   YoY Qtrly

 

Purchase Apps | October = Underwhelming - Purchase LT

 

Purchase Apps | October = Underwhelming - Purchase YoY

 

Purchase Apps | October = Underwhelming - 30Y FRM

 

 

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


Big FICC Fade Signal

Client Talking Points

FX

Post another nasty #Deflation print out of the Eurozone (PPI -3.1% year-over-year vs. -2.6% last), the EUR/USD is down -0.4% and is finally signaling immediate-term TRADE oversold vs. an overbought U.S. Dollar Index into the U.S. jobs report.

OIL

WTI went squirrel yesterday vs. the correlation machines (up with the USD up), but it is also signaling immediate-term TRADE overbought alongside Energy Equity Beta (XOP and XLE).

RATES

For the umpteenth time this year, the UST 2YR Yield is in this 0.75-0.80 zone and signals overbought on “they’re gonna raise rates” – you’re one more bad jobs report away from 0.59% 2YR and 1.98% 10YR. FYI – we are staying with that call.

 

**Tune into The Macro Show at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 61% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 33% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

Last week was a big week for McDonald’s (MCD), as they reached the inflection point we were predicting. Post earnings, the next catalyst for the stock is going to be the November 10th analyst meeting.

 

The meeting will be an opportunity for management to shed more light on the progress of all day breakfast, additional G&A cuts and the potential of doing a REIT. Our Restaurants team remains bullish on the name, and they look forward to giving you some material updates after the meeting.

RH

Restoration Hardware (RH) shares gained 5.8% this past week. The margin story here is explosive. Margins were sitting below 10% on Friday, and we think they will be above 16% in 3 years. The key reason is that expense leverage on these new properties is like nothing we’ve ever seen (i.e. RH pays only 10% more for square footage that’s 300% larger).

 

In addition, the company does not have to proportionately grow its sourcing organization with the growth in its store base OR its category expansion.

 

Our estimate is that the company will add $3 billion in sales over 3-years and climb to $11 in EPS. The earnings growth and cash flow characteristics to get to that kind of number would support a 30+ multiple. In the end, we’re getting to a stock in excess of $300.

TLT

Our forecasts for domestic economic growth continue to be more accurate than the consensus. We anticipate economic growth will get a lot worse from here. That is why you want to own long-term bonds (TLT, EDV).

  • Real GDP growth slowed to 1.5% on a quarter-over-quarter seasonally adjusted basis. That was actually right at the top end of our range going into it (remember that the mainstream Q/Q annualized number is unpredictable)
  • On the Y/Y numbers, growth decelerated for a 2nd straight quarter to 2.0% from +2.7%
  • Consumption growth was a huge contributor to the number vs. the manufacturing side of the economy which continues to slow. However, take a look at the important chart below. We’re already past peak consumption growth. Consumption growth was positive on an absolute basis but remained rate of change negative with Q3 representing the 2nd quarter of deceleration off of the Q1 2015 peak
  • Both residential and nonresidential Investment decelerated sequentially and inventories contributed almost -1.5% bps to the headline number
  • Personal Income decelerated to +0.1% for Sep vs. +0.3% in August. The expectation was for a +0.2% print
  • Personal spending decelerated to +0.1% from +0.4%. The expectation was also for +0.2% print.
  • Core PCE printed flat at +1.3% Y/Y for Sep. vs. Aug. on a Y/Y basis. That number missed expectations for a +1.4% print

Three for the Road

TWEET OF THE DAY

Bad food sells. I get it.  Bad food layered with years of price increases doesn’t, kind of like.......  (fill in the blank)

@HedgeyeHWP

QUOTE OF THE DAY

There is more to life than increasing its speed.

Mahatma Gandhi

STAT OF THE DAY

The national average for a gallon of gasoline dropped 1.1 cents during the past week to $2.18 a gallon, according to GasBuddy. That’s about 11 cents lower than one month ago and 79 cents less than one year ago. AAA puts the national average at $2.19.


CHART OF THE DAY: Every Closed Signal @KeithMcCullough Issued in October | #RealTimeAlerts

Editor's Note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe.

 

CHART OF THE DAY: Every Closed Signal @KeithMcCullough Issued in October | #RealTimeAlerts - RTA CoD

 

"... While our competition may have the illusion that we “got killed” in October, we’re big on the whole transparency thing and would like to submit today’s Chart of The Day, in #timestamped terms – every closed signal [in Real Time Alerts] that I issued in OCT.

 

Back to what’s really been killed:

  1. Inflation Expectations (see our #Deflation Theme from last year)
  2. Growth Expectations
  3. Earnings Expectations"

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.

Bullish Illusions

“Illusion is the first of all pleasures.”

-Oscar Wilde

 

Chinese stocks “ripped” +4.3% overnight on “speculation of opening a north-south link” that were tied to a PBOC’s “Governor comments” published on their website yesterday… but the comments ended up being from May 27th.

 

Lol

 

That headline was easily more entertaining than my favorite US domestic-equity-navel-gazer of the night: “Tesla posts its biggest loss in 10 quarters… but strong delivery guidance has the stock up +9%.”

 

Back to the Global Macro Grind

 

Into “earnings”, if you didn’t know that Tesla (TSLA) had crashed -25% from its 2014-2015 US Stock Market #Bubble top (see Hedgeye’s Macro Theme from Q4 of 2014 called #Bubbles for timing details), you’d have the illusion that whoever chased it at $280 is back to break-even.

 

It’s all about being driver-less and earnings-less, baby!

 

Bullish Illusions - Earnings cartoon 11.03.2015

 

To be fair, the SP500 OCT #HPAD (Hedgie-Perf-Anxiety-Disorder) Squeeze story wasn’t part of the earning-less one we outlined in calling the US Stock Market #Bubble what we called it before 62% of stocks in the Russell 3000 (which is 98% of stocks you could have bought) broke their 200-day Moving Monkey.

 

That epic OCT squeeze of +8.3% for the SPY was the best OCT since, well, Global Growth Slowed fastest last time (2011).

 

While our competition may have the illusion that we “got killed” in October, we’re big on the whole transparency thing and would like to submit today’s Chart of The Day, in #timestamped terms – every closed signal I issued in OCT.

 

Back to what’s really been killed:

 

  1. Inflation Expectations (see our #Deflation Theme from last year)
  2. Growth Expectations
  3. Earnings Expectations

 

Here’s an update on what I am sure every 2015 US GDP and “Earnings” bull nailed:

 

  1. Of the 500 companies in the SPY, 383 have reported Q3 Earnings (100% of them should have nailed that, so far)
  2. SP500 Sales Growth is currently down -5.2%
  3. SP500 Earnings Growth is currently down -4.3%
  4. Industrials Sector Sales Growth of -5.7% is worse than the SP500’s
  5. Financials Sector Earnings Growth of -6.2% is worse than the SP500’s

 

So, if you “back out Energy”, and stayed long the Industrials and Financials (which are both DOWN YTD in absolute return terms), you’re the strategist (or PM) who actually got nailed this year.

 

Are we competitive? Are you?

 

Obviously the score in this game matters. And while I do risk manage the immediate-term as aggressively and proactively as any strategist you’ll find (in Real-Time Alerts, which is where all my #timestamps live), the main reason for that is the obvious one – only someone who has never run money in their life wouldn’t buy/cover low and short/sell high, as Macro Themes get priced in.

 

Is both Global and US #GrowthSlowing further (in both Q415 and 1H16) from here priced in?

 

I don’t think so. And you can be damn sure that I’ll be held accountable to that view.

 

What’s most amazing to me at this stage of the game isn’t that we’re still doing what we do. It’s that the consensus that missed both #GrowthAccelerating in 2013 and #GrowthSlowing in 2015 is still doing what they do.

 

I guess the illusion in many people’s minds is that they never had any of this wrong, all along.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term research TREND views in brackets) are now:

 

UST 10yr Yield 1.98-2.26% (bearish)

SPX 2027-2116 (bearish)
RUT 1140--1198 (bearish)

NASDAQ 4 (bullish)

Nikkei 181 (neutral)

DAX 108 (neutral)

VIX 13.85-19.21 (bullish)
USD 96.31-98.02 (bullish)
EUR/USD 1.08-1.11 (bearish)
YEN 120.10-121.60 (bearish)
Oil (WTI) 42.98-48.23 (bearish)

Nat Gas 2.08-2.38 (bearish)

Gold 1110-1150 (neutral)
Copper 2.29-2.39 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish Illusions - RTA CoD


The Macro Show Replay | November 4, 2015

 


November 4, 2015

November 4, 2015 - Slide1

 

BULLISH TRENDS

November 4, 2015 - Slide2

November 4, 2015 - Slide3

November 4, 2015 - Slide4

 

BEARISH TRENDS

November 4, 2015 - Slide5

November 4, 2015 - Slide6

November 4, 2015 - Slide7

November 4, 2015 - Slide8

November 4, 2015 - Slide9

November 4, 2015 - Slide10

November 4, 2015 - Slide11

November 4, 2015 - Slide12


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.49%
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