• run with the bulls

    get your first month

    of hedgeye free


Initial Claims | Jurassic Markets

Takeaway: The cycle is late. We know it. Michael Crichton knows it. You should know it too.

“Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled.”

-Michael Crichton


Initial Claims | Jurassic Markets - Claims1


While consensus still regards the labor market as strong and improving, the simple fact is that the labor data is getting less good from a rate of change standpoint. This matters, as second derivates are the natural precursor/harbinger to first derivate changes. Initially, things get less good, then they get bad. Initial jobless claims have hit their frictional lower bound and we're coming up on the anniversary of that lower bound meaning that the best they can do going forward is not get any worse. Imagine if that were a company at full earnings power/potential and the best it could is not see earnings decline going forward. Not to digress, but what would that be worth? Obviously, not much of a growth premium and yet the market is still trading at its 9th highest decile on CAPE since 1926. The analog here for Financials is peak earnings from a credit standpoint for balance sheet-intensive Financial companies. We've finally begun to see credit costs stop falling, and in some cases they have begun to rise. Even with some late-cycle loan growth, this spells peak earnings. Stairs up, elevator down.


Meanwhile, rolling SA claims are in their 23rd month below 330k. The last three cycles saw claims remain below 330k for 24, 45 and 31 months (33 months on average) before the economy entered recession. That puts us 10 months from the average, 1 month from the min and 22 months from the max. Any way you slice it, the hour is late and there's a faint glow of asteroid on the horizon. 



Initial Claims | Jurassic Markets - Claims6


Initial Claims | Jurassic Markets - Claims17



The following three charts show the continued labor market deterioration in energy states. The Y/Y rate of change in energy state jobless claims continued at a +13% pace in the week ending January 16 versus the -7% rate of improvement in the Total U.S. excluding those 8 energy states.



Initial Claims | Jurassic Markets - Claims13


Initial Claims | Jurassic Markets - Claims14


Initial Claims | Jurassic Markets - Claims12



The data

Prior to revision, initial jobless claims fell 15k to 278k from 293k WoW, as the prior week's number was revised up by 1k to 294k.


The headline (unrevised) number shows claims were lower by 16k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -2.25k WoW to 283k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -3.1% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -6.2%


Initial Claims | Jurassic Markets - Claims2


Initial Claims | Jurassic Markets - Claims3


Initial Claims | Jurassic Markets - Claims4


Initial Claims | Jurassic Markets - Claims5


Initial Claims | Jurassic Markets - Claims7


Initial Claims | Jurassic Markets - Claims8


Initial Claims | Jurassic Markets - Claims9


Initial Claims | Jurassic Markets - Claims10


Initial Claims | Jurassic Markets - Claims11


Initial Claims | Jurassic Markets - Claims19

Yield Spreads

The 2-10 spread rose 1 basis point WoW to 116 bps. 1Q16TD, the 2-10 spread is averaging 119 bps, which is lower by -17 bps relative to 4Q15.


Initial Claims | Jurassic Markets - Claims15


Initial Claims | Jurassic Markets - Claims16



Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT


HedgeyeRetail (1/28) | Brands Competing With Wholesale Partners

Takeaway: Brands putting the screws to Wholesale partners by upping E-commerce agenda

Specialty Retailer Christy Sports tired of competing with its vendors as they make DTC push 



This is a major trend developing in retail as brands make the DTC push. Essentially competing with its historical wholesale partners on price to push growth through a direct agenda. And, the brands have a lot of margin dollars to work with in the DTC channel by eliminating the wholesale markup.


Take Nike, for example, which generates about a 51% Gross Margin when it sells a $100 pair of shoes to Foot Locker. But it garners about a 68% margin when it sells on nike.com. That’s nice, but it’s not what we care about. We care about the Gross Margin dollars – not the rate. On that very pair of sneakers, Nike gets about $23 in Gross Profit from that ‘wholesale’ sale to Foot Locker. But it gets about $85 (by our math) when it sells direct. In other words, there is a magnifier effect, and the dot.com margin dollars go up by a factor of 3-4x.


All it takes is a few sales hiccups for retailers to the give the stiff arm to vendors who are selling the same product behind their backs. But, that doesn't work when one brand is 75%+ of sales volume.


For a full run down on how the DTC push affects the traditional wholesale model, especially Foot Locker, see our note: NKE/FL | Critical Context on NikeLocker.



WMT - Walmart is taking its battle with Amazon to the cloud -- its new OneOps cloud management and application lifecycle platform is being released



M - Macy’s will offer limited-edition merchandise, promotions and in-store events to benefit Go Red For Women next month -- customers who purchase $3 pin will receive 25% off most items storewide



TIF - Coty, Tiffany Ink Fragrance Licensing Deal



UA - Under Armour will sell $500 Cam Newton cleats if he is named Super Bowl MVP



FINL - Retailers bet big on retooling supply chains for E-commerce after Finish Line's warehouse system fails



AMZN - Free Shipping is no longer enough -- Amazon and other online retailers go for speed



UPDATE | Our Best Macro Ideas (And The Nasty Equity Reality)

Takeaway: With the Fed tightening into a slowdown, stock market declines haven’t been transitory.

UPDATE | Our Best Macro Ideas (And The Nasty Equity Reality) - liquidity trap cartoon 01.25.2016


For those of you keeping score, here's the year-to-date breakdown of S&P 500 sector performance:



Not pretty.


Making matters worse for long-only perma-bulls, volume has been lackluster (at best) on up days and rips on the down days.



This doesn't bode well for anyone who's doubled-down on Old Wall "wisdom" of buying the dip as equities went down, down, down.


Our subscribers? They're doing just fine.


People invested in the truth see our calls for what they are.



Here's a snippet from a note Keith sent to subscribers this morning. 


"... Our Top 3 Long Ideas in Macro right now remain: USD, Utilities (XLU), and The Long Bond – 10yr in the US about to break the 2.00% yield level again as German and Japanese 10s chase to lower-lows of 0.42% and 0.21%, respectively."


Incidentally, XLU is crushing it year-to-date (up +1.3%) compared to the S&P 500 (down -7.7%). Check out sector performance in the chart above ... the sole green line ... Yup --> Utilities.


Checking in on U.S. Treasuries. After today's Durable Goods bomb, the 10-year broke 2%. A nice call from McCullough earlier this morning.


Stick with accountable and transparent 2.0 sources. Stick with us. We're the only Wall Street firm to nail this #GrowthSlowing data. We're just getting started. 

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.



Déjà vu, rerun, we’ve seen this movie before, replay, Rocky X. After re-reading our LVS Q3 analysis, I was struck by the similarity with last night’s release. Hedgeye was positioned long on the stock. What we thought would happen did indeed happen. The stock still looks like a long but, just like last quarter, only for a trade.


Believe me, I want to make the long recommendation, call the turn, be the maverick. In meetings with clients in New York, Boston, and London I laid out conditions I was looking for to go long for more than a trade: 1) multiple compression, 2) lower Street estimates more in line with Hedgeye, and 3) a belief that Mass has stabilized. For the first time in our 2 year-long short call 1) and 2) have occurred but it’s that fundamental point number 3 that brings us back to our keep a trade a trade recommendation.



Market Declines Aren’t Transitory

Client Talking Points


They crushed the Shanghai Composite -2.9% to lower-lows overnight. There’s not much the Chinese can do at this point – they’ve already lied to the world about both their GDP figures and intentions to devalue the Yuan by 10-15%.


Consensus is so focused on “Oil and China,”  but is nowhere near focused enough on the #crash (> 20% decline from 2015 peak) in European Equities. Spain is a disaster and Italian Banks are leading the MIB Index -3% this morning (-14% in the last month alone).


Our Top 3 Long Ideas in Macro right now remain: USD, Utilities (XLU), and The Long Bond. The UST 10YR is about to break the 2.00% yield level again as German and Japanese 10s chase to lower-lows of 0.42% and 0.21%, respectively.


*Tune into The Macro Show with Energy analyst Kevin Kaiser live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Utilities (XLU) continue to be the bright spot in the equity markets for 2016. XLU is up 1% this year, having edged out all other S&P 500 subsectors by a wide margin. Last week, XLU was down marginally but was still second best among the subsectors, beating all but Healthcare (XLV). Essentially, it's paying off to own low-beta XLU in a crashing market.


General Mills (GIS) has turned on its advertising for no artificial colors and flavors in its cereal, as well as an increased effort for its gluten free campaign. Click here to view the 30 second spot TV commercial.


These steps taken on cereal, coupled with improved merchandise planning across their portfolio in the second half should bode well for the company’s future performance. Additionally, General Mills fits neatly into the style factors that we like from a macro point of view, large cap, low beta and liquidity.


Rating agency S&P disclosed on Thursday three concerning stats as it relates to the wellness of credit oustanding:

  • More companies were at risk of having their credit ratings cut at the end of December than at the close of any other year since 2009
  • The number of potential downgrades was at 655, compared with 824 reported by the finish of 2009
  • The year-end total for 2015 was "exceptionally" higher than a yearly average of 613


Then on Friday, S&P followed with additional action:

  • Disclosure that oil-exporting countries face fresh downgrades as crude prices fall further and that it could repeat last year's move when it made a big group of cuts all at once
  • S&P currently has Azerbaijan, Bahrain, Kazakhstan, Oman, Russia, and Saudi Arabia on negative outlook in its Europe, Middle East and Africa region, as well as Brazil and Venezuela in Latin America

Moody’s echoed the shaky state of credit markets by announcing it was putting the ratings of 120 oil and gas companies on watch Friday.


Strap on your seatbelts as we expect that credit spreads will continue to widen. If the Fed pivots on its “4 rate hikes” in 2016 as the data continues to slow, Treasury bond yields get pushed lower and high-yield spreads widen into a late cycle deleveraging. This should continue to generate alpha in a Short JNK, Long TLT trade.

Three for the Road


McCullough: My Thoughts On Today's Fed Statement https://app.hedgeye.com/insights/48793-mccullough-my-thoughts-on-today-s-fed-statement… via @hedgeye



Life is short. Smile while you still have teeth.

Mallory Hopkin                           


Today in 1878, The Yale Daily News became the 1st daily college newspaper in the U.S.

CHART OF THE DAY: There Goes The Fed's Credibility


CHART OF THE DAY: There Goes The Fed's Credibility - 01.28.16 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 learn more.


"... That is why the #Deflation & #GrowthSlowing bears won (again) yesterday. To summarize:


  1. The Fed continues to be a pro-cyclical version of a Labor Economist (Overweight #LateCycle employment data)
  2. The Fed continues to call something that’s been pervasive (#Deflation) “transitory”
  3. And, as a result, the Fed continues to be behind the curve, lagging both real-time economic data and market moves" 


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 80.46%
  • SHORT SIGNALS 78.35%