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McCullough: What QE Actually Did Was Pay The Few And Crush The Many

 

In this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough discusses quantitative easing and explains how to respond to any economist at your Thanksgiving dinner table who thinks the U.S. jobs market is great.


Full Plate | Housing Goes 3 for 3 Pre-Holiday

Takeaway: The late-Fall negative data tide appears to be turning in the housing sector as a recent spate of positive prints suggest emergent strength.

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.

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - Compendium 112515

 

Today’s Focus: New Home Sales for October, FHFA HPI & MBA Apps

 

In Short:  Purchase Demand held above trend for a 2nd week, New Home Sales in October retraced the Sept cratering and FHFA HPI confirmed the acceleration in Prices.

 

We’ll try to keep it tight here in reviewing the pre-holiday data deluge in housing.

 

Purchase Applications:  Purchase demand dipped -0.5% WoW and accelerated to +24% YoY, providing some soft confirmatory evidence that last week’s +11.9%  gain was more than just statistical noise in a holiday week (Veteran’s day).  Two weeks of strength now have 4Q tracking +0.3% higher QoQ and accelerating to +21.2% YoY.   

 

Alongside (what the Fed hopes is) the most well-telegraphed rate hike in history, its more probable than not that we’re seeing some measure of demand pull-forward with prospective buyers pulling the purchase trigger in fear of further financing based affordability declines.   

 

While comps remain easy the next 5-6 weeks and the data should remain good on balance, discerning a clear trend in the underlying data during the holiday period is challenging as imperfect statistical adjustments can push the data either way in any given week. 

 

New Home Sales:  New Home Sales rose +10.7% MoM in October following the bomb of a print in September  (-12.9%, which was revised further lower).  What happened in September is unclear but we do know a couple things: 

 

First, NHS is the most volatile housing series there is and carries a large standard error with significant subsequent revisions. 

 

Second, the NHS estimate methodology is particularly sensitive to the impacts of TRID implementation.  NHS estimates are imputed based on permits data but many new homes have a sales contract prior to permit issuance – and any TRID related pull-forward would mostly likely show up as un-permitted, signed contracts. 

 

In any case, at 495K in October, NHS sit exactly on the TTM average and just below the YTD average of 499.6K with sales thru October running +15.2% over the same period last year.  So, on net, perhaps some marginal weakness the last two months with the latest month rebounding back to Trend. 

 

FHFA HPI:  The FHFA HPI series accelerated +50bps sequentially to +6.1% YoY.  With the Case-Shiller series also registering acceleration yesterday, all three of the primary price series are telling a congruous, positive 2nd derivative HPI story.   We reviewed the Case-Shiller data and the supply situation yesterday (HERE) and we’ll get our first look at October price data with the CoreLogic HPI release next week.  

 

 

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - FHFA HPI YoY

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - NHS   SF Starts TTM

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - NHS to EHS ratio

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - NHS Inventory

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - NHS LT

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - NHS Median   Mean Price

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - NHS Units   YoY TTM

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - Purchase 2013v14v15

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - Purchase Index   YoY Qtrly

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - Purchase Monthly

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - Purchase YoY

 

Full Plate | Housing Goes 3 for 3 Pre-Holiday - 30YFRM 

 

 

 

About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.

   

 

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

 


CLAIMS | ENERGY - THERE WILL BE BLOOD

Takeaway: Energy states continue to show accelerating deterioration in labor conditions relative to the rest of the country.

As an oilman, I hope that you'll forgive just good old-fashioned plain speaking.

 - Daniel Plainview, There Will Be Blood (I'm An Oil Man Speech)

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Oil pic

 

Below is the breakdown of this morning's labor data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

Let's speak plainly. The trend in energy state claims (chart below) shows the spread between indexed claims in energy states and the country as a whole has steadily increased from a low of 3 in early July to 34 as of the most recent reading for the week ending November 14. Energy hedges are rolling off broadly as the end of 2015 approaches. We expect this emergent acceleration in the deterioration in labor conditions throughout  the energy patch to continue into 2016. 

 

The takeaway here is that company's with high relative exposures to energy hubs like Houston and Calgary will see headwinds continue for some time. 

 

Meanwhile, the rest of the country continues, for now, to exhibit decent performance as evidenced by the fact that non-energy states are collectively more than offsetting the weakness in the energy footprint. Overall, initial jobless claims showed week-over-week improvement with the SA figure falling from 272k to 260k and the year-over-year rate of change in rolling NSA accelerating slightly from -6.5% to -8.2%. 

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims18 2

 

The Data

Prior to revision, initial jobless claims fell 11k to 260k from 271k WoW, as the prior week's number was revised up by 1k to 272k.

 

The headline (unrevised) number shows claims were lower by 12k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims was stable at 271k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -6.5%.

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims3

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims4

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims5

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims6

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims7

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


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P | Register Response = Non Event (Web IV)

Takeaway: The Register punted the second question, but this wan't really a major event to begin with, especially since P has all but conceded defeat.

KEY POINTS

  1. REGISTER PUNTS QUESTION 2: The CRJs had asked the Register whether it was allowed to distinguish royalty rates by the type of copyright owner.  This was really a question of the major labels vs. independents, which can't command the same pricing as the majors.  The Register replied suggesting that this isn't a question that it should be addressing , but also stated that CRJs should adopt a single rate structure since no party involved argued for one that distiguished between licensors during the proceeding.
  2. ISN'T THIS A WIN FOR P? Not really.  While the majors may get dinged since a single rate could capture the independent's lack of pricing power, this is really a non-event for P.  The majors control roughly 70-80% of all music that is streamed.  So the difference would have been P paying a higher rate on ~75% of its tracks and a lower rate on the independent tracks, or likely weighted average blended rate that essentially capture this dynamic.  
  3. DEC 15th: The legal deadline for the CRB's decision.  We've laid out all the reasons why we believe P has the weakest position (i.e. Merlin) in this proceeding in the links below.  Whether you agree with our Web IV analysis or not, it's important to understand what's embedded in the current street assumption of down to flat rates.  The CRJs would not only have to bless the Merlin deal, they would have to overweight it.  Given that P has essentially blown up its business model prior to the decision (first link below),  we'd be careful to assume as much.

 

See charts and notes below for supporting detail/analysis on P's model and Web IV.  Let's us know if you have any questions or would like to discuss further.

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 

P | Register Response = Non Event (Web IV) - P   Cash   Commitments 2

P | Register Response = Non Event (Web IV) - P   pre 1972 

P | Register Response = Non Event (Web IV) - P   Web IV fallout 1

P | Register Response = Non Event (Web IV) - P   Web IV fallout 2

P | Register Response = Non Event (Web IV) - P   Leverage Slide

P | Register Response = Non Event (Web IV) - P   Cost structure slide 2

 

P | Changing Its Tune (Strategic Update Call)

11/17/15 08:35 AM EST

[click here]

 

P: Can We Still Be Friends? (3Q15)

10/23/15 08:14 AM EDT

[click here]

 

P: It's All About the Benchmarks (Web IV)
10/02/15 12:22 PM EDT
[click here]

 

P: Fool's Gold (Web IV)
09/21/15 02:05 PM EDT
[click here]

 

P: Losing the Critical Debate? (Web IV)
04/08/15 08:53 AM EDT
[click here]


CLAIMS | ENERGY - THERE WILL BE BLOOD

Takeaway: Energy states continue to show accelerating deterioration in labor conditions relative to the rest of the country.

As an oilman, I hope that you'll forgive just good old-fashioned plain speaking.

 - Daniel Plainview, There Will Be Blood (I'm An Oil Man Speech)

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims1

 

Let's speak plainly. The trend in energy state claims (chart below) shows the spread between indexed claims in energy states and the country as a whole has steadily increased from a low of 3 in early July to 34 as of the most recent reading for the week ending November 14. Energy hedges are rolling off broadly as the end of 2015 approaches. We expect this emergent acceleration in the deterioration in labor conditions throughout  the energy patch to continue into 2016. 

 

The takeaway here is that company's with high relative exposures to energy hubs like Houston and Calgary will see headwinds continue for some time. 

 

Meanwhile, the rest of the country continues, for now, to exhibit decent performance as evidenced by the fact that non-energy states are collectively more than offsetting the weakness in the energy footprint. Overall, initial jobless claims showed week-over-week improvement with the SA figure falling from 272k to 260k and the year-over-year rate of change in rolling NSA accelerating slightly from -6.5% to -8.2%. 

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims18 2

 

The Data

Prior to revision, initial jobless claims fell 11k to 260k from 271k WoW, as the prior week's number was revised up by 1k to 272k.

 

The headline (unrevised) number shows claims were lower by 12k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims was stable at 271k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -6.5%

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims2

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims3

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims4

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims5

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims6

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims7

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims8

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims9

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims10

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims11

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims19

 

Yield Spreads

The 2-10 spread fell -10 basis points WoW to 130 bps. 4Q15TD, the 2-10 spread is averaging 142 bps, which is lower by -11 bps relative to 3Q15.

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims15

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


A (Not So) Happy Thanksgiving For U.S. Data

Takeaway: We're sticking with our reality-based recession call for 2016.

A (Not So) Happy Thanksgiving For U.S. Data - turkey

 

In a note to subscribers this morning, Hedgeye CEO Keith McCullough highlighted a few recent market developments that he's watching today: 

 

"It was another strong bounce-back morning for the greenback +0.4% vs. the Euro is taking the commodity crash right back to the woodshed – Oil -1.5% post yesterday’s +2.8% bounce (which helped Energy stocks lead the US equity rally off the lows intraday) - #Deflation Risk = On."

 

A (Not So) Happy Thanksgiving For U.S. Data - usd greenshoot

 

This evolving story has everything to do with monetary policy as the Yellen Fed looks to tighten in December while the ECB and Draghi ease. It's no surprise that the dollar is strengthening.

  

In other central planning news, the gap between 10yr and 2yr U.S. Treasuries is closing on speculation of a December rate hike. More analysis from McCullough:


"The yield curve continues to compress as the US economic data slows (Corporate profits -3.2% Q3 and Consumer Confidence tanked to 90.4) – this week the 10s/2s spread has compressed another 6bps to +129bps as credit trades like 1,000 pounds of stale pumpkin in a 100lb bag."

 

That further compression of the yield curve came after last week's -9bps.

 

Then again, the Fed apparently doesn't seem too concerned about raising rates into a slowdown. Here's the most recent spate of #GrowthSlowing data. Note the January peaks. 

 

Consumer Confidence

 

A (Not So) Happy Thanksgiving For U.S. Data - consumer confidence

 

Consumer Spending

 

A (Not So) Happy Thanksgiving For U.S. Data - gdp

 

Do you see any economic green shoots? We don't.


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