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FLASHBACK | McCullough: Non-Farm Payrolls Peaked Last Year

Takeaway: Jobs are the latest of #LateCycle indicators. NFP peaked in rate of change terms in Febraury 2015.

Click The video below to watch

 

This past November Hedgeye CEO Keith McCullough nicknamed the supposedly strong October jobs number the, "Where’s Waldo jobs report." His message was clear: So what.

 

McCullough's point was that jobs are the latest of #LateCycle indicators and that NFP had already peaked in rate of change terms in Febraury 2015. On a related note, consensus missed today's jobs number because they don't understand our thesis. 

 

Watch the video above for more of his analysis. And feel free to show the chart below of NFP rolling over to anyone claiming the last few months of jobs reports have been "good" ...

 

Click to enlarge


LNKD | Guidance = Recession

Takeaway: Guidance implies a recession or is an egregious sandbag. Either way, there may not be much left to play for this year in either direction.

KEY POINTS

  1. 4Q15 = REALLY MESSY:  LNKD produced a relatively small top-line beat on what appeared to be a soft 4Q15 guide when they issued it. During the call, mgmt introduced a lot noise through the announced sunset of its Lead Accelerator product and what sounded/read as its plan to stop disclosing LCS accounts.  Mgmt also stated that Talent Solutions add-ons and renewals both declined on a y/y basis; both factors are reflected in LNKD’s ARPA, which suggests the selling environment is deteriorating.
  2. GUIDANCE = RECESSION: LNKD’s Talent Solutions guidance breakdown is calling for a sharp deceleration in organic revenue growth from 32% in 4Q15 to ~20% in 2016.  That’s basically implying a recession since its guidance translates to sharply declining ARPA and/or net new LCS Account growth; at a magnitude that is well in excess of anything it's ever reported for either of those metrics (see analysis below).  More likely than not, this is an egregiously sandbagged guidance release given how sudden the deceleration is that's baked into it.  
  3. NOT SURE WHAT'S LEFT TO PLAY FOR: On either the short or long side.  The sandbag/recession guide should give LNKD at least a couple quarters of breathing room before another short opportunity might emerge.  But even if LNKD winds up producing upside over the next two prints, we're not sure anyone is really going to chase that with this print in the rear view mirror and macro concerns looming.  That said, we're staying on the sidelines for now.

 

LNKD | Guidance = Recession - LNKD   ARPA vs. JOLTS 4Q15

LNKD | Guidance = Recession - LNKD   TS 2016 Guid Scen 1

 

 

Let us know if you have any questions or would like to discuss in more detail.

 

Hesham Shaaban, CFA


@HedgeyeInternet 


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Editor's Note: We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.

 

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INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.96 1.81 1.87
SPX
S&P 500
1,855 1,950 1,915
RUT
Russell 2000
985 1,039 1,014
COMPQ
NASDAQ Composite
4,417 4,649 4,509
NIKK
Nikkei 225 Index
16,464 17,606 17,044
DAX
German DAX Composite
9,307 9,691 9,393
VIX
Volatility Index
20.02 27.45 21.84
USD
U.S. Dollar Index
96.19 98.66 96.49
EURUSD
Euro
1.07 1.12 1.11
USDJPY
Japanese Yen
116.38 121.11 116.74
WTIC
Light Crude Oil Spot Price
28.73 34.49 31.69
NATGAS
Natural Gas Spot Price
1.98 2.28 1.98
GOLD
Gold Spot Price
1,110 1,160 1,156
COPPER
Copper Spot Price
1.97 2.13 2.12
AAPL
Apple Inc.
91 99 96
AMZN
Amazon.com Inc.
514 579 536
GOOGL
Alphabet Inc.
705 747 730
MCD
McDonald's Inc.
118 125 120
XLU
Utilities Select Sector SPDR
45.01 47.93 46.42
VRX
VAleant Pharma Inc.
85.55 99.56 96.94


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The Macro Show Replay | February 5, 2016

 

 


CHART OF THE DAY | Earnings Update: How Many Sectors Are Currently In A Profit Recession?

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.

 

"... In terms of the US profit #Recession, here’s the update now that 308 of 500 S&P Companies have reported:

 

  1. Total SALES -4.7%, EPS -6.4% (both metrics slowed since I updated you on earnings season earlier in the week)
  2. NEGATIVE y/y EPS SECTORS: Energy, Materials, Industrials, Consumer Staples, Financials, Info. Technology, Utilities
  3. POSITIVE y/y EPS SECTORS: Consumer Discretionary, Healthcare, and Telecom

 

So if you back out the 3 of 10 S&P Sectors that don’t have profit recessions trending, you have no earnings growth in the SP500 at all. Isn’t it funny how a sentence like that sounds even though it’s precisely how the “Ex-Energy” crowd has been telling stories?"

 

CHART OF THE DAY | Earnings Update: How Many Sectors Are Currently In A Profit Recession? - 02.05.16 chart

 


When Bad Is Bad

“It is far better to be alone than to be in bad company.”

-George Washington

 

Not everyone thinks about our profession that way. There’s a comfort in consensus. And there’s discomfort in the idea of risking fluffy compensation structures.

 

When it comes to the now consensus debate about the timing of the next US #Recession, it was far better to have been alone considering this probability 3-6 months ago.

 

Today, even the Financials Times (FT) is running a headline that says “Yes, the risk of a US Recession is low. But It’s Rising.” And that, as Darius Dale tweeted in response, “is precisely the point – the market prices in rising or falling risks, not absolute probabilities.”

 

When Bad Is Bad - recession cartoon 02.04.2016

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

 

Back to the Global Macro Grind

 

For those of you who are new to our Independent Research #Process, alongside chaos theory, one of the fulcrum points of what we do is called Rate of Change. Math people call it calculus.

 

Both economic and market history will remind you that it’s not whether things are “good” or “bad” that matters most; it’s whether things are getting better or worse. In other words:

 

  1. If the growth data is slowing from its cycle peak, the probability of a US Recession is rising
  2. If the growth is slowing at a slower rate from its cycle low, the probability of an economic acceleration rises

 

No, measuring cycle peaks and lows isn’t easy. It’s a grind. It requires both flexibility and patience. While the consensus that tends to miss the turns wants to price everything that they missed in using “valuation” (i.e. an absolute), it’s better to ignore them.

 

While many will be navel gazing at today’s US jobs report, that’s not what matters most in handicapping the probability of a US stock market crash (> 20% decline from its cycle peak) – corporate profits and credit spreads do.

 

In terms of the US profit #Recession, here’s the update now that 308 of 500 S&P Companies have reported:

 

  1. Total SALES -4.7%, EPS -6.4% (both metrics slowed since I updated you on earnings season earlier in the week)
  2. NEGATIVE y/y EPS SECTORS: Energy, Materials, Industrials, Consumer Staples, Financials, Info. Technology, Utilities
  3. POSITIVE y/y EPS SECTORS: Consumer Discretionary, Healthcare, and Telecom

 

So if you back out the 3 of 10 S&P Sectors that don’t have profit recessions trending, you have no earnings growth in the SP500 at all. Isn’t it funny how a sentence like that sounds even though it’s precisely how the “Ex-Energy” crowd has been telling stories?

 

A better question is why an over-owned sector like Healthcare continues to flash bearish divergences (under-performing other sectors) in 2016? That’s a rate of change answer too: earnings are going from great to good.

 

To summarize how our Research Team speaks internally (i.e. mathematically):

 

  1. When something goes from great to good, that’s bad
  2. When something goes from good to bad, that’s really bad
  3. When something goes from bad to less bad, that’s good

 

And, of course, when something goes from good to great – well that’s just great!

 

Back to what consensus (and the Fed, since Yellen is basically a Labor Economist) will be focused on today, don’t forget the following rate of change realities:

 

  1. Non-Farm Payrolls (NFP) peaked at +2.34% year-over-year growth in FEB of 2015
  2. The most recent NFP report (December) slowed to +1.88% year-over-year growth
  3. Most employment data is the most lagging of #LateCycle economic data you can measure anyway

 

In other words, the peak of the US Labor Cycle is already in. The Bond Market gets that. It’s already priced in the #LateCycle slow-down call we made last year via A) long-term yields falling and B) credit spreads widening.

 

And unless your assumption is that we’re never going to have another recession, you’re just going to be wasting your time arguing with people who missed the most important part of calling for probabilities of a #Recession rising – the top.

 

When the economic growth data has already gone from great, to good, to bad – markets price bad news as bad, until the worst of the data has been discounted. And since it’s still “good”, US Labor data has a long way to go before bad gets less bad.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.81-1.96%

SPX 1

NASDAQ 4
USD 96.19-98.66
Oil (WTI) 28.73-34.49

Gold 1110-1160

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

When Bad Is Bad - 02.05.16 chart


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