McCullough: Why You Can’t Trust U.S. Jobs Numbers

In this excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough answers a subscriber’s question on whether he has any issues with the reported jobs numbers. And, according to McCullough, “the real risk has to do with the Federal Reserve’s forecast, and their anchoring of this entire edifice of policy rate hike expectations on the most late-cycle of economic indicators, which is employment.”




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


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Purchase Apps | Autumn Drift

Takeaway: Purchase Applications were an uneventful +0.1% WoW, extending the post-TRID streak of underwhelming activity to 4-weeks.

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 | Autumn Drift - Compendium 111115


The modest southward drift in Purchase Activity to close out October persisted to start November.  Headline Mortgage Applications dropped -1.3% week-over-week as Purchase Activity rose +0.1% and refi activity retreated -2.2% alongside the largest weekly backup in rates since early June.


Purchase Demand declined -0.1% week-over-week, leaving the index flat at 190 to start November - at current levels, November is tracking at the lowest level since March (1st chart below).    On a year-over-year basis, Purchase Demand decelerated -120 bps to +18.1% with activity currently tracking -1.3% QoQ. 


Rates on the 30Y FRM contract rose +11bps sequentially to 4.12% - marking the highest level in 3-months as the bond market bid both the long and short end higher in the wake of the strong October Employment report.   At current levels, rates are now north of the 2015 average of 4.02% but remain below the 4.35% average for 2014.  


In short, mortgaged purchase activity continued to underwhelm for a fourth week following TRID Implementation in early October.  Looking out the next couple weeks, we expect largely trend consistent prints out of Starts/HMI while re-convergence to PHS suggests negative growth in Existing Sales in October (reported 11/23) and potential further softening (TRID-vacuum) in reported PHS/NHS data for October – see our recent note, Catalysts & Cross Currents | Contextualizing the Recent Housing Data, for further detail and context.  


Purchase Apps | Autumn Drift - Purchase monthly


Purchase Apps | Autumn Drift - Purchase YoY


Purchase Apps | Autumn Drift - Purchase 2013vs14v15


Purchase Apps | Autumn Drift - Purchase Index   YoY Qtrly


Purchase Apps | Autumn Drift - 30Y FRM


Purchase Apps | Autumn Drift - Purchase LT


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. 



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



Joshua Steiner, CFA


Christian B. Drake


The Dance with Deflation

“Yes my life is better left to chance,

I could have missed the pain but I’d have had to miss the dance.”

-Garth Brooks


Back when Keith, our President Michael Blum, and I were undergrads at Yale, we used to sing Garth Brooks tunes late into the night over a keg of warm beer.  Things were much simpler on college campuses back then.  In fact, I’m not even sure we dressed up for Halloween.


The most recent controversy on the grounds of our alma mater has gained national attention.  Inasmuch as I can discern, the debate is over whether Halloween costumes are offensive or are examples of free speech.  Also, whether the proverbial, and literal, adults in the room have any right to comment on any of this or should be focused on creating “safe places.”  Heady issues to be sure.


Since we tend to stay away from both social and political opinions at Hedgeye, we will stick with that path on this controversy as well.  We should submit, though, that this episode does offer an interesting , albeit anecdotal, view into the mind of the Millennial.


Speaking of which, we are pleased to have Neil Howe, the man who actually coined the term “Millennial,” speaking  next week at Macrocrosm: The Dock Debates, our first conference.  On the topic of demographics, we asked Neil to discuss the impact that the super-connected 75+ million Milllenials will have on the upcoming Presidential election.


As it relates to the Yale “controversy,” Neil had this to write:


“When it comes to controlling misbehavior, Millennials insist that the institution step in with rules where earlier generations (Xers, Boomers) would have pushed peer pressure or peer-on-peer intervention. In the "Animal House" era, you *never* punished a jerk by going to the dean--you did it yourself, when the dean wasn't looking!”




Please email if you’d like to reserve a spot for the conference as we expect to be at full capacity by the end of the week.  Full details on Macrocosm (full lineup of speakers, topics, etc) can be found here.


The Dance with Deflation - z macrocosm


Back to the Global Macro Grind...


Inasmuch as college administrators are doing the dance with Millennials, the more interesting dance for those of us with an interest in the real economy is the dance with deflation.  Part of our macro team is in Texas this week meeting with prospects and clients and of course experiencing the epicenter of energy deflation.


Interestingly, Texas has so far largely shaken off the impact of substantially lower oil prices on employment.  Other than March of this year, in which Texas lost 24,500 jobs, the state has continued to add employees.  This is a much better scenario then when WTI was at the same level in 2009 and Texas lost almost 340,000 jobs that year.


The bigger challenge for Texas is related to the government’s budget.  With WTI -1.1% this morning to $43.02, the 4.6% tax the state imposes on the value of all oil produced in the state is not going to add up to much this year.  As a result, there is no question that Texas will be running a budget deficit for the forseeable future.  And an even greater likelihood is that a Fed interest rate hike pushes Texas (and other oil producing areas) into recession.


North of the border, Canada is faring much worse.  In Alberta, the "Texas of Canada," it is expected that 185,000 oil and gas jobs will be lost in 2015.  This is a substantial number of jobs to lose on Alberta’s population base of only 4.2 million.  In aggregate, Canada employs 720,000 people in the oil & gas industry with a full 2/3 located in Alberta.  The loss of these jobs has had a broad impact on Canada. Since 2014, Alberta was responsible for 90% of the new jobs created in Canada.


Unlike Texas and the United States, this Dance with Deflation has already impacted Canada.  After two quarters of negative growth, Canada is officially in a recession.  As a result, the Canadian central bank has cut rates twice this year.  The next shoe to fall in Canada is likely to be deflating residential real estate prices.  


To add fuel to the fire, the newly elected Canadian Prime Minister has pledged to raise taxes on those making over $200,000 per year.  This move is only likely to accelerate home price declines in markets like Calgary, Toronto, and Vancouver. 


Nonetheless, Canadian housing cheerleaders point to the fact that home prices nationally were up 6.1% in September.  To a point, this is fair.  So far, the Canadian housing market has shrugged off the recession.  But economic gravity will eventually prevail and while the Canadian central bank will do everything it can to protect home prices.  This is all likely to end very poorly for the Loonie and Canadian banks.


On the topic of commodities and deflation, Hedgeye is launching its new "Materials" sector tomorrow November 12th at 1:00pm led by two stalwarts of our research team Jay Van Sciver and Ben Ryan.  Their initial presentation will be on gold and their proprietary supply and demand model will attempt to answer this question:


“Gold prices in dollars have declined since 2011, despite two incremental rounds of quantitative easing and perpetual zero interest rates.  US long bonds have performed well in a similar environment.  What are the gold bugs missing?“


Before signing off today on this Veteran’s Day, I wanted to salute the men and women in uniform.  We all thank you.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.09-2.38%

SPX 2055-2094

VIX 13.74-18.87 
USD 98.15-99.98 
Oil (WTI) 43.02-45.73 

Gold 1069-1113 

AAPL 116-123 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research 


The Dance with Deflation - zz COD

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 80.43%
  • SHORT SIGNALS 78.34%

CHART OF THE DAY: Share of Millennials Living At Home With Mom and Dad

Editor's Note: Below is a brief excerpt and chart from today's Early Look which was written by Hedgeye Director of Research Daryl Jones. Click here to learn more and to subscribe.


CHART OF THE DAY: Share of Millennials Living At Home With Mom and Dad - zz COD


"...Speaking of which, we are pleased to have Neil Howe (the man who actually coined the term “Millennial”) speaking next week at Macrocrosm: The Dock Debates, our first investor conference.  On the topic of demographics, we asked Neil to discuss the impact that the super-connected 75+ million Milllennials will have on the upcoming Presidential election." 

November 11, 2015

We've made some updates and enhancements to Daily Trading Ranges. You'll now receive risk ranges for 20 tickers each day -  the last five of which will be determined by what's flashing on Keith's screen and by what names you're asking about. Contact if you have any questions or feedback.


  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
2.38 2.09 2.32
S&P 500
2,055 2,094 2,081
Russell 2000
1,160 1,206 1,1847
NASDAQ Composite
5,035 5,175 5,083
Nikkei 225 Index
19,106 19,781 19,671
German DAX Composite
10,562 11,017 10,832
Volatility Index
13.74 18.87 15.29
U.S. Dollar Index
98.15 99.98 99.39
1.06 1.09 1.07
Japanese Yen
121.33 123.95 123.21
Light Crude Oil Spot Price
43.02 45.73 43.63
Natural Gas Spot Price
2.20 2.38 2.33
Gold Spot Price
1,069 1,113 1,088
Copper Spot Price
2.18 2.28 2.22
Apple Inc.
116 123 116
1,290 1,375 1,311
Valeant Pharmaceuticals International, Inc.
71.01 92.69 85.41
Alibaba Group Holding Ltd.
80.49 86.11 81.43
Wayfair Inc.
38.02 43.36 39.43
Nuskin Enterprises, Inc.
33.04 37.94 36.20



USD, Oil and Greece

Client Talking Points


Relentless USD strength as my Berkeley boy Williams (San Fran Fed) hits USA Today with the “recent data supports a rate hike” – apparently he missed all the industrial/cyclical, ISM, and GDP data. But raising rates into #LateCycle slow-down is mucho deflationary for many asset prices – DEC 4th U.S. Jobs Report up next.


Oil continues to get smoked on the biggest risk that remains (the Fed’s forecast for an economic acceleration), with WTI down -1.1% to $43.69 with an important level of immediate-term support at $43.02. One interesting idea (developing, timing matters) is buying Oil if that DEC 4th jobs report is more in line with the slowing labor TREND.


Strong Dollar Debt #Deflation is public enemy #1 to the world’s most levered countries and companies. Greek stocks continue to diverge negatively vs. DAX this morning, down -1% and the Greek 10YR Yield is up +14 basis points day-over-day.


**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Post earnings, the next catalyst for McDonald’s (MCD) is going to be next week's 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.


Restoration Hardware (RH) hit all-time highs this week, but this story is far from over. We think RH will earn close to $11 per share in 3 years, which compares to the consensus estimate of just over $6. We estimate that the stock is worth $300.


The square footage component is well known, but we think people are missing…

  1. The productivity and market share that we’re likely to see from each new store,
  2. How scalable this business model is without commensurate capital investment,
  3. The leverage we’re likely to see is below-market real-estate deals being struck today and that should begin to impact the P&L. 

Current policy makers remain fixated on the jobs market, and this Friday’s report was good on the surface. Here’s the rundown:

  • The U.S. added +271K to non-Farm payrolls in October which blew out the expectation for +185K additions (last month’s awful print was revised even lower to +137K additions). Remember that the estimates are useless as the number is near impossible to predict. Keep that in mind.
  • Unemployment Rate moved lower to 5.0% for October from 5.1% in September
  • Wage growth was a positive surprise as Avg. hourly earnings printed a +2.5% growth rate for October vs. an expectation of +2.3%. The growth rate in September was +2.2%

So, again, on the surface it was a positive report. However, as we’ve emphasized, consumption and labor market strength are staples of an economy that is late cycle.

Growth continues to slow, and a rate hike has the potential to pull-forward a recession and flatten the yield curve. In the event this happens, you’ll be happy you held onto your long-bond position. If you haven’t bought into the #slower-for-longer view, the market is giving you the chance to buy bonds at another lower high… For the 5th time this year.

Three for the Road


**NEW VIDEO (2 mins)

McCullough: It’s Looking A Lot Like November 2007… via @KeithMcCullough #markets $SPY #earnings



The best way out is always through.

Robert Frost


The Dallas Fed’s Manufacturing Outlook has dropped for 10 months in a row.

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