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CoreLogic HPI | Why, When, What

Takeaway: October HPI trends - which showed a 3rd month of acceleration - remain a moderate tailwind for the housing complex.

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. 

 

CoreLogic HPI | Why, When, What - Compendium 120115

 

Today's Focus: October CoreLogic Home Price Report

 

WHY: Historically, the 2nd derivative trend in home price growth has shown a strong direct relationship with equity performance across the housing complex and across builders in particular.  A primary reason is that accelerating price growth effectively gets captured in land values, raising the value of lots in inventory with that margin capture dropping through the P&L and augmenting profitability.  

 

WHEN: After peaking in early 2014, price growth decelerated discretely through 2014 year-end. Along with the tail impact of rising rates (2013 Taper Tantrum) and the Peak in regulatory tightening (QM implementation, Jan 1014), negative price growth trends drove significant underperformance in housing equities through the first 3-quarters of 2014.  Price growth subsequently stabilized and accelerated modestly in 1Q 2015 which, along with positive seasonality and easy volume comps, drove marked outperformance for the group. 

 

WHAT: As the 1st chart below illustrates, price growth across all three primary HPI series is again showing modest acceleration the last couple/few months – a largely unsurprising development given the ongoing, crawling improvement in demand, continued supply tightness, and prices' lagged relationship with demand.   

 

From here, it’s more likely we see some stabilization in price trends rather than another iteration of the large-scale inflections (i.e. +/- 15% YoY) that have characterized the post-crisis period to-date but, as it stands, HPI trends remain a moderate tailwind supporting the complex.  

 

CoreLogic HPI | Why, When, What - HPI 3 Series 2

 

CoreLogic HPI | Why, When, What - CoreLogic ExDistressed

 

CoreLogic HPI | Why, When, What - HPI vs ITB

 

 

About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."

 

Joshua Steiner, CFA

 

Christian B. Drake


INVITE | THOUGHT LEADER CALL | RICK BERMAN ON CHIPOTLE AND OTHER INDUSTRY ISSUES

Please join us on Thursday, December 3rd at 11:00AM EST, for our Thought Leader call with Rick Berman. 

 

CALL DETAILS

Toll Free:

Toll:

Confirmation Number: 13625958

 

On the call we will be discussing a number of important topics facing the restaurant industry, from labor issues, to the potential for increased restrictions on alcohol consumption at restaurants.  In addition, Rick will talk about the Center for Consumer Freedom and the number of issues they have with Chipotle.  The Center for Consumer Freedom has been very critical of Chipotle's advertising message among other issues.

 

The topics we will discuss on the call will include the following:

  1. A view “inside the beltway” on minimum wage and the risks facing the restaurant industry?
  2. Potential new restriction on the sale of alcohol and what can be done to mitigate the impacts increased regulation?
  3. What Chipotle’s protein “standards” are versus other restaurant companies (beef, pork and chicken).
  4. A discussion about the use of antibiotics in the food supply and the difference between USA vs International standards.
  5. Dispelling the myths around antibiotics in meat.
  6. Did CMG changed its standards around antibiotic in the meat its serves?
  7. How is CMG’s advertising a form of fear mongering.
  8. What is the real meaning of cage-free/free range?  Does this definition matter?
  9. How prevalent is non-gmo feed?

INVITE | THOUGHT LEADER CALL | RICK BERMAN ON CHIPOTLE AND OTHER INDUSTRY ISSUES - Cartoon1

 

Rick Berman Bio

Rick Berman is President of Berman and Company, a Washington, DC-based public affairs firm specializing in research, communications, and creative advertising.

 

Berman has founded several leading nonprofit organizations known for their fact-based research and their aggressive communications campaigns.

A long-time consumer advocate, Rick champions individual responsibility and common sense policy. He believes that democracies require an informed public on all sides.

 

Berman was previously employed as Executive Vice President of Public Affairs at the Pillsbury Restaurant Group, where he was responsible for the government relations programs of all restaurant operations. He was also a labor lawyer at the United States Chamber of Commerce, the Dana Corporation, and the Bethlehem Steel Corporation.

 

Rick Berman has testified on numerous occasions before committees of the various state legislatures, the U.S. Senate and the U.S. House of Representatives. The Hill, a popular Washington, DC newspaper has named him a “Star Rainmaker” on Capitol Hill. Rick has appeared on all the major broadcast and cable television networks, and has organized national coalitions to address a wide variety of issues.

  

Here is the link to the center for Consumer Freedom web site - https://www.consumerfreedom.com/

 

In addition, here is a link to the Chubby Chipotle web site - http://www.chubbychipotle.com/

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 

 


REPLAY: Healthcare Analyst Tom Tobin in the Studio | $ATHN $AHS $ILMN $MD

Headgeye's Healthcare team hosted a live Q&A session today at 1:00pm ET to discuss Illumina (ILMN), MEDNAX (MD), AMN Healthcare (AHS) and athenahealth ATHN.

 

 

TOPICS INCLUDED:

 

  • Key takeaways from our recent conversation with the Chief Medical Officer of Genomics and Pathology Services at top U.S. academic medical center
  • Maternity Tracker Update through November and latest thoughts on MD
  • Callouts heading into ATHN's Investor Day and preview of our institutional update call next week on 12/8

in case you missed it...watch the replay below

 

 


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

The Macro Show Replay | December 1, 2015

 


CHART OF THE DAY: The Great Unwind [Inside the Commodity Price Super-Cycle]

 

CHART OF THE DAY: The Great Unwind [Inside the Commodity Price Super-Cycle] - 12.01.15 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.

 

"... As you can see in today’s Chart of The Day (slide 41 in our current Global Macro Themes deck), inflation expectations hit an all-time high in 2011-2012 as Ben Bernanke devalued the US Dollar to a 40-year low.

 

That, you see, was the key to Bernanke’s storytelling – not creating real, sustainable growth – but creating the illusion of growth (commonly called inflation). With that expectation in hand, the world’s asset inflation chasers built massive oversupply.

 

Priced in devalued Dollars, 2 of the top “asset classes” one would chase if expecting perpetual inflation are:

 

  1. Commodities that settle in US Dollars
  2. Leverage (Debt) linked to inflation expectations

That’s why our recommended asset allocation to both Commodities and Junk Debt has been right around 0% for the last 18 months."   


Are You Sexy?

“Have a rule. Always follow the rule, but know when to break it.”

-Lasse Heje Pedersen

 

That’s an important quote to qualify from a good finance book I’ve recently cited called Efficiently Inefficient. From a portfolio manager’s perspective, I like it because it makes you think about what it is that you do within the context of what other people do.

 

After melding fundamental research with a quantitative overlay, my rule is to be Bayesian. As the data and market signals change, I need to consider changing my position. Rule #1 is don’t lose money. Rule #2 is break most of the Old Wall’s linear forecasting rules.

 

Maverick Capital’s Lee Ainslie (fundamental long/short equities) explained to Pedersen that they “built a quantitative system that informs their fundamental process and helps manage the risk” (pg 11). I’d say that’s pretty consistent with most “fundamental” investors we meet with these days. Mistaking the Dollar driven #Deflation Rules for “value” crushed lots of fund managers this year.

 

Are You Sexy? - dollar

Click here to join Hedgeye CEO Keith McCullough live on The Macro Show at 9am. 

 

Back to the Global Macro Grind

 

The sexiest thing you can do on the long or short side of a security is pick a top or bottom. Been there, done that. Nailed a few – been nailed by more than a few. Along the way, I have come to realize that I’m not sexy.

 

Tops and bottoms are processes, not points. To understand how the biggest macro risk factor of the last 2 years bottoms, it’s critical to educate yourself on what the causal factors were driving #Deflation to begin with. (hint: start with the US Dollar)

 

As you can see in today’s Chart of The Day (slide 41 in our current Global Macro Themes deck), inflation expectations hit an all-time high in 2011-2012 as Ben Bernanke devalued the US Dollar to a 40-year low.

 

That, you see, was the key to Bernanke’s storytelling – not creating real, sustainable growth – but creating the illusion of growth (commonly called inflation). With that expectation in hand, the world’s asset inflation chasers built massive oversupply.

 

Priced in devalued Dollars, 2 of the top “asset classes” one would chase if expecting perpetual inflation are:

 

  1. Commodities that settle in US Dollars
  2. Leverage (Debt) linked to inflation expectations  

 

That’s why our recommended asset allocation to both Commodities and Junk Debt has been right around 0% for the last 18 months. That’s also why we have been telling our clients to avoid Style Factors linked to #Deflation like:

 

  1. High Debt to Enterprise Value Equities
  2. High Beta Small Cap Stocks (with bad balance sheets)
  3. High “yielding” stocks with inflation linked cash flow expectations (like levered upstream E&P MLPs)

 

On the short side, that’s why Rule #1 (don’t lose money) was as important as any rule you should have followed this year. It’s also why the opposite of those Style Factors made for championship seasons for some of you, on the long side:

 

  1. Low Debt to Enterprise Value Equities
  2. Low Beta Large Cap Stocks (with good balance sheets)
  3. Unlevered Growth Equities that saw revenues accelerate as GDP slowed

 

And that brings us to the next obvious question: how do we A) not blow up those gains in 2016 (Rule #1) and B) have another good year of compounding returns? While the sexiest answer might be calling a bottom in #Deflation, I don’t do sexy.

 

We do process.

 

Are You Sexy? - Deflation cartoon 11.24.2015

 

The data (in the rate of change process) says that October’s counter-TREND bounce in everything inflation expectations was (like it was in July) another head-fake.

 

Notwithstanding that US and Global Consumption slowing right now (bigger component of GDP) is more important than the recession you’ve seen develop in cyclical/industrial PMIs for the last 12 months, the PMIs themselves still sucked in November:

 

  1. US (Chicago) PMI tanked to 48.7 in NOV (yesterday’s report) vs. 56.2 in OCT
  2. China’s made-up PMI remained below 50 in NOV at 49.6 vs. 49.8 in OCT
  3. UK’s PMI slowed to 52.7 in NOV vs. 55.5 in OCT

 

Sure, there were some other 4-handles on PMIs (4 = contraction/recession reading) in places like Switzerland (49.7) and Norway (47.6) this morning. But anyone who isn’t sleeping in a cave realizes that #Deflation has been priced in, to a degree, in their markets.

 

Priced in? Those are two of the sexiest words a “value investor” who wants to pick a bottom can hear. That said, if you start to buy a crashing asset price, you better have more capital to average in.

 

As the great value-investor, Marty Whitman, says: “a bargain that remains a bargain, is no bargain.”

 

Value with a catalyst? Yep. That’s what I’m looking for. And, while it’s been wrong since July, maybe that’s why the “PMIs have bottomed” call has been so sexy – everyone is looking for something to love.

 

In November all we measured were more bearish worldwide demand (read: #GrowthSlowing) signals on both the industrial and consumption side of the ledger. With the US stock market only having 5 up days in the last 18, Mr. Macro Market saw that too.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.18-2.28%

SPX 2045-2106
RUT 1148--1209
USD 99.15-100.38
Oil (WTI) 40.69-43.15

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Are You Sexy? - 12.01.15 EL chart


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