prev

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑

Takeaway: The crawling trend towards housing market normalization continues as 1st time buyers continue to grow while all cash and distressed shrink.

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. 

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - Compendium 112315 

 

Today's Focus: October Existing Home Sales 

EHS:  Predictably (HERE), EHS in October retreated -3.4% month-over-month, almost fully re-coupling with the Trend in Pending Sales.   After retracing back to cycle highs in September, EHS fell to 5.36MM and decelerated to +3.9% YoY – the slowest pace of growth in 9 months as we begin to traverse steadily steepening comps. 

 

As always – because closings are largely a lagged function of contract signings - we're more interested in next week’s Pending Home Sales data.  PHS for October will provide an important update on the softening demand trend observed over the last two months and whether recent regulatory changes are having a measurable impact.  Notably, any first evidence of TRID related bottlenecks/impacts should be evident in the November EHS (released 12/22) as the first bolus of Post-TRID (implemented Oct 3rd) closings will occur in November.  

 

Inventory & Price:  Units of inventory dropped for a second month, declining -2.28% MoM in October to 2.14 mm.  With sales declining more than supply, inventory on a month-supply basis rose slightly to 4.79-months, marking the 38th consecutive month below the traditional balanced market level of 6-months.  Ongoing supply tightness in the 90% of the market that is EHS remains supportive of improving HPI trends in the nearer-term.

 

1st-Time Buyers:  First-time buyers rose to 31% of the market in October, up from 29% recorded last month and in October of last year.  In contrast to the headline decline (& YoY deceleration), sales to 1st-time buyers rose +3.2% MoM and accelerated +220bps sequentially to +11% year-over-year in October.  So long as the labor/income fundamentals continue to improve across the 20-40YOA demographic, rising headship rates and single-family purchase demand should continue to manifest on a moderate lag. Further, alongside the ongoing improvement in entry level buyer demand, the crawling trend towards housing market normalization continued as all cash sales declined to 24% of transactions (down from 27% last year) while distressed sales fell to the lowest level since 2008 at 6%.

 

 

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - EHS vs PHS

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - EHS 1st time buyers

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - EHS Months Supply

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - EHS YoY   Units

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - EHS Inventory Units

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - EHS LT

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - EHS Regional YoY

 

EHS | Sales ↓, Inventory ↓, 1st-Time Buyers ↑ - HPI Regional YoY

 

 

 

 

About Existing Home Sales:

The National Association of Realtors’ Existing Home Sales index measures the number of closed resales of homes, townhomes, condominiums, and co-ops. Existing home sales do not take into account the sale of newly constructed homes. Existing home sales account for 85-95% of all home sales (new home sales account for the remainder). Therefore, increases in existing home sales tend to signify increasing consumer confidence in the market. Additionally, Existing Home Sales is a lagging series, as it measures the closing of homes that were pending home sales between 1 and 2 months earlier.

 

Frequency:

The NAR’s Existing Home Sales index is published between the 20th and the 22nd of each month. The index covers data from the prior month.

 

 

  

Joshua Steiner, CFA

 

Christian B. Drake


Crash! Boom! Bang! [Commodity Crash Continues]

Takeaway: In case you hadn't noticed, commodities are in a bear market.

The crash continues...

 

Crash! Boom! Bang! [Commodity Crash Continues] - z crash

 

In a note to subscribers this morning, Hedgeye CEO Keith McCullough (once again) highlighted the developing commodity bear market:

 

"The crash in Copper (-1.8% this am to $2.02) continues and Oil is down another -3%, testing $40 WTI (again) – hardly the green shoots a supply/demand bull is looking for, but I’m probably being too bearish looking at fact vs fiction."

 

It's no coincidence that the Copper and Oil price crash coincided during a week of U.S. dollar strength. The U.S. dollar index was up +0.6%, and +10.3% YTD, after ECB President Mario Draghi said, "We will do what we must to raise inflation as quickly as possible." That sent the Euro -1.2% on the week to -12% YTD.

 

This strong dollar event is just as deflationary a force as it was during the summer.

 

Consequently, things like Copper have plummeted. Copper is off 28% year-to-date.

 

Crash! Boom! Bang! [Commodity Crash Continues] - copper 1

 

It's happening all throughout commodities. The CRB index is down 20% year to date.

 

Crash! Boom! Bang! [Commodity Crash Continues] - 11.23.15 EL chart

 

Here is a look at some other commodities:

  • Wheat prices dropped another -1.6% on the week, taking it back into crash mode at -20.8% YTD 
  • Nickel deflated another -5.1% week-over-week, taking its crash to -41.5% YTD
  • Oil (WTI) continued to crash, closing down another -1.2% week-over-week at -30.9% YTD

 

***In related news, Saudi Arabia announced earlier this morning that it is ready to work with other countries to stabilize the price of Oil.

 

Crash! Boom! Bang! [Commodity Crash Continues] - Oil cartoon 11.20.2015

 


Monday Mashup

Monday Mashup - CHART 1

 

RECENT NOTES

11/18/15 CAG | SMOOTH MOVES

11/13/15 NUS | SHOW ME THE MONEY!

11/13/15 NUS | BLACK BOOK PRESENTATION REPLAY

11/10/15 HAIN | THE COMPETITIVE ISSUES ARE JUST BEGINNING

11/05/15 BDBD | ADDING IT TO THE LONG BENCH

 

SECTOR PERFORMANCE

Food and organic stocks that we follow underperformed the XLP last week. The XLP was up +2.6% last week, the top performers on a relative basis from our list were Amira Natural Foods (ANFI) and Smuckers (SJM) posting increases of +10.6% and +6.9%, respectively. The worst performing companies on a relative basis on our list were United Natural Foods (UNFI) and WhiteWave Foods (WWAV), which were down -5.9% and -4.5%, respectively.

Monday Mashup - CHART 2

 

XLP VERSUS THE MARKET

Monday Mashup - CHART 3

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP is BEARISH in the TRADE duration, but BULLISH in the TREND duration.

Monday Mashup - CHART 4

 

Food and Organic Companies

Monday Mashup - CHART 5

Monday Mashup - CHART 6

Monday Mashup - CHART 7

Monday Mashup - CHART 8

 

Keith’s Three Morning Bullets

US stocks had their 3rd up day in the last 13 (Friday) and volume was -14% vs. it’s 1yr avg:

 

  1. USD – another #StrongDollar week in the bag (+0.6% USD Index to +10.3% YTD) after Draghi Devaluation sent the Euro -1.2% on the wk to -12% YTD – this is as deflationary a force as it was in the summer-time – FICC markets get that – Equities, not so much
  2. COMMODITIES – crash in Copper (-1.8% this am to $2.02) continues and Oil is down another -3%, testing $40 WTI (again) – hardly the green shoots a supply/demand bull is looking for, but I’m probably being too bearish looking at fact vs fiction
  3. UST 2YR – spike continues to 0.93% this morning as the Fed abandons the “data dependence” thing and goes with whatever the SP500 is doing instead – USD and short-term rates say DEC hike – so does the Yield Spread, compressing 9bps last wk, which reads as a hike perpetuating both #Deflation and #GrowthSlowing

 

SPX immediate-term risk range = 2040-2108; UST 10yr Yield 2.18-2.36%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION

Takeaway: Rising Fed expectations remain deflationary, while the situation in Europe is the exact opposite.

 

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM11

 

Key Takeaway:

Global risk measures were bifurcated last week, dependent on each region's central bank behavior. U.S. bank swaps and the TED spread widened on Federal Reserve minutes showing that most FOMC participants thought conditions for a rate hike could be met by December. In contrast, European bank swaps tightened as ECB minutes conveyed a dovish position and suggested the possibility of further stimulus in December. Additionally, Chinese bank swaps tightened as the PBOC took measures to lower short-term rates.

The knock-on from Fed tightening expectations rising is that commodity prices boadly remain defalationary, falling 2.4% W/W and 5.2% M/M. One specific callout is Chinese steel, which shed another 2.3% W/W and remains in crash mode. Oddly, in spite of broad commodity deflation, sovereign swaps for Brazil and Russia both tightened materially on the week (-38 bps). 

 

Our heatmap below is predominantly negative in the short-, intermediate-, and long-term measures.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Negative / 3 of 12 improved / 5 out of 12 worsened / 4 of 12 unchanged
• Intermediate-term(WoW): Negative / 5 of 12 improved / 6 out of 12 worsened / 1 of 12 unchanged
• Long-term(WoW): Negative / 2 of 12 improved / 3 out of 12 worsened / 7 of 12 unchanged

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM15

 

1. U.S. Financial CDS – Swaps widened for 14 out of 27 domestic financial institutions. With Wednesday's FOMC minutes showing that most participants thought conditions for a rate hike could be met by the December meeting, the median swap widened by +2 bps from 73 to 75.

Tightened the most WoW: MTG, LNC, ACE
Widened the most WoW: CB, PRU, AXP
Tightened the most WoW: MMC, BAC, LNC
Widened the most MoM: CB, AIG, ACE

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM1

 

2. European Financial CDS – Swaps mostly tightened in Europe last week as Wednesday's ECB minutes showed a strong possibility of further stimulus next month and ECB President Mario Draghi provided dovish rhetoric during a speech on Friday.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM2

 

3. Asian Financial CDS – In China, financial swaps tightened on news that the PBOC was cutting rates yet again. Additionally, India's ICICI Bank's swaps tightened significantly, falling -19 bps to 166.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM17

 

4. Sovereign CDS – Sovereign Swaps mostly tightened over last week. Portuguese sovereign swaps tightened the most, by -24 bps to 191.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM18

 

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM3

 

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Russian and Brazilian swaps led the way, tightening by -39 bps to 253 and -38 bps to 396, respectively.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM16

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM20

6. High Yield (YTM) Monitor – High Yield rates fell 3 bps last week, ending the week at 7.82% versus 7.84% the prior week.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index fell 5.0 points last week, ending at 1832.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM6

8. TED Spread Monitor  – The TED spread rose 4 basis points last week, ending the week at 28 bps this week versus last week’s print of 24 bps.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM7

9. CRB Commodity Price Index – The CRB index fell -2.4%, ending the week at 184 versus 188 the prior week. As compared with the prior month, commodity prices have decreased -5.2%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - 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 widened by 1 bps to 16 bps.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index was flat last week at 1.78%. 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 | COMMODITY DEFLATION - RM10

12. Chinese Steel – Steel prices in China fell 2.3% last week, or 48 yuan/ton, to 2059 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 | COMMODITY DEFLATION - RM12

13. 2-10 Spread – Last week the 2-10 spread tightened to 134 bps, -9 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM13

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.3% upside to TRADE resistance and 1.2% downside to TRADE support.

MONDAY MORNING RISK MONITOR | COMMODITY DEFLATION - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


Monday Mashup

Monday Mashup - CHART 1

 

RECENT NOTES

11/23/15 CMG | SHORT THE FUNDAMENTALS

11/20/15 WEN | REMOVING THE SHORT | GOING LONG

11/20/15 ZOES | ALL IS WELL IN THE KITCHEN

11/17/15 CMG FLASH CALL | SHORT | HYPOCRISY THEORY GAINING MOMENTUM

11/16/15 MCD | THE DAY MCCAFE DIED

 

RECENT NEWS FLOW

Friday, November 20

HABT | Is postponing its proposed follow-on offering of common stock because of current capital market conditions (ARTICLE HERE)

CMG | National outbreak of E. coli at Chipotle restaurant continued to spread (CDC WEBSITE) (FDA WEBSITE)

MCD | Will try new smaller “Originals” unit in France, paying tribute to the early beginnings of the company (ARTICLE HERE)

 

Monday, November 16

MCD | To offer ‘McPick” 2 for $2 menu starting on January 4th, with heavy marketing backing from the company (ARTICLE HERE)

YUM | Taco Bell to serve cage free eggs at all 6,000 U.S. locations by the end of 2016 (ARTICLE HERE)

 

SECTOR PERFORMANCE

Casual Dining and Quick Service stocks that we follow widely underperformed the XLY, last week, which was up 4.5%. Top performers on a relative basis from casual dining were FRGI and KONA posting increases of +5.8% and +5.0%, respectively, while ARCO and WEN led the quick service group this week up +10.1% and +7.6%, respectively.

Monday Mashup - CHART 2

Monday Mashup - CHART 3

 

XLY VERSUS THE MARKET

Monday Mashup - CHART 4

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLY looks BULLISH from a TRADE and TREND perspective, TREND support is 77.99.

Monday Mashup - CHART 5

 

CASUAL DINING RESTAURANTS

Monday Mashup - CHART 6

Monday Mashup - CHART 7

Monday Mashup - CHART 8

 

QUICK SERVICE RESTAURANTS

Monday Mashup - CHART 9

Monday Mashup - CHART 10

Monday Mashup - CHART 11

 

Keith’s Three Morning Bullets

US stocks had their 3rd up day in the last 13 (Friday) and volume was -14% vs. it’s 1yr avg:

 

  1. USD – another #StrongDollar week in the bag (+0.6% USD Index to +10.3% YTD) after Draghi Devaluation sent the Euro -1.2% on the wk to -12% YTD – this is as deflationary a force as it was in the summer-time – FICC markets get that – Equities, not so much
  2. COMMODITIES – crash in Copper (-1.8% this am to $2.02) continues and Oil is down another -3%, testing $40 WTI (again) – hardly the green shoots a supply/demand bull is looking for, but I’m probably being too bearish looking at fact vs fiction
  3. UST 2YR – spike continues to 0.93% this morning as the Fed abandons the “data dependence” thing and goes with whatever the SP500 is doing instead – USD and short-term rates say DEC hike – so does the Yield Spread, compressing 9bps last wk, which reads as a hike perpetuating both #Deflation and #GrowthSlowing

 

SPX immediate-term risk range = 2040-2108; UST 10yr Yield 2.18-2.36%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


CHART OF THE DAY: An Epic Crash In Commodities

 CHART OF THE DAY: An Epic Crash In Commodities - 11.23.15 EL chart

 

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

 

"... If all you looked at was the US stock market last week, your economic forecast would have gone up. Unfortunately, commodity #Deflation and a compression in the US Treasury Yield Spread didn’t corroborate the permanently bullish (consensus) US GDP outlook...

 

Commodities (CRB) Index deflated to new 2015 lows, -0.6% on the week to -20.1% YTD"


investing ideas

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.

next