prev

Recessionary Gales Are Billowing Over The U.S.

Takeaway: A quick wrap up on our Macro team's U.S. recession call.

Recessionary Gales Are Billowing Over The U.S. - recession cartoon 02.04.2016

 

Since January, our Macro team has highlighted the increasing likelihood that the U.S. economy slips into recession sometime in Q2 or Q3 of 2016. Below are charts and analysis from Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale based on today's economic data.

 

While today's jobless claims data was strong, a "strong" jobs market always precedes a recession.

 

Consumer confidence is beginning to roll over...

 

"On a ratio basis, however, it's starting to signal what the trend in corporate profits and jobless claims already have ("Recession" in ~6 months)," Dale writes.

 

Here's the chart.

 

Recessionary gales are blowing. Dale is also tabulating a massive amount of economic data that is heading south.

 

Recessionary Gales Are Billowing Over The U.S. - data

 

Still unconvinced? Watch McCullough in the video below laying out "The Three Signs of A Coming Recession."

 

 

No, we're not bullish.


McCullough: ‘Markets Are Looking Crashy’

In this brief excerpt of The Macro Show earlier today, Hedgeye CEO Keith McCullough explains why he’s more convinced than ever that stocks will crash and why 2016 is eerily reminiscent of 2008.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.


INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE

Takeaway: We're late in the cycle and the Fed has little room to maneuver. This is (and should be) causing alarm for most Financials investors

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims1 normal

 

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 

 

This week we want to take a step back from the high frequency claims data and take stock of where we are in the cycle, and consider what policy tools the Fed has at its disposal.

 

Where are we in the cycle? As the chart below shows, we're now in month 23 of initial jobless claims running at a sub-330k level. The last 3 cycles have seen the expansion last 24, 45 and 31 months at a sub-330k level, with an average of 33 months. Coupled with the slew of weak economic data coming from the industrial/manufacturing/energy side of the economy, we think it's a better than bad bet that economic contraction isn't far away. 

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims18 normal

 

What can the Fed do about it? We think the cycle being late warrants asking the question: What can the Fed do? The table below shows that the Fed's average response to the past seven recessions has been a -750 bps rate cut. However, it is facing a significant shortfall in its accommodative ability with the Fed Funds rate currently sitting at around 0.36%. In other words, it's one and done to get back to zero, and then it's QE or NIRP. As we show at the end of this note, the yield spread is already at a post-crisis low (108 bps), which is ratcheting up the pain for banks. 2016 was supposed to be the year when this pressure finally turned tailwind, but instead it's increasingly looking like the opposite is the most probable course for 2016 and beyond. 

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims17 normal  1

 

Meanwhile, the three charts below show that claims in energy states continue to grow, rising most recently at a +14% year-over-year rate.

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims12 normal  1

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims13 normal  1

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims14 normal  1

 

The Data

Initial jobless claims fell 7k to 262k from 269k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -8k WoW to 273.25k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -2.9% lower YoY, which is a sequential improvement versus the previous week's YoY change of -1.5%.

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims2 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims3 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims4 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims5 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims6 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims7 normal  2

 

INITIAL CLAIMS | AT THE END OF THE CYCLE WITHOUT A PADDLE   - Claims15 normal

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


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.

INSTANT INSIGHT | We Said 'Beware The Bounce' A Crash Is Coming

Takeaway: That "bounce" in stocks? It's deflating.

INSTANT INSIGHT | We Said 'Beware The Bounce' A Crash Is Coming - Bull SCREAM 01.06.2015

 

After a 3-day squeeze off the lows, nothing has changed the causal factor of growth and profits slowing. Below are key observations from Hedgeye CEO Keith McCullough's macro notebook sent to subscribers earlier this morning:

 

"REFLATION – this is what, the 4th or 5th or 6th time (July, Oct, Feb = were the biggest “bottom is in” commodity led rallies) I’ve had to quintuple down on #Deflation being non-transitory – Australia and Russia (Equities) +2.3% this morning vs. Copper down -1% - who has the intermediate-term call from here right? Copper"

 

We've been warning our subscribers about the next dramatic leg down in stocks. 

 

"RUSSELL – after “covering” (Real-Time Alerts signaling product) SPY last week, the signal said to re-short the Russell (IWM) into the close yesterday – fully loaded with the 3-day squeeze, don’t forget that the Russell 2000 is still in crash mode (-21.9% since July) and being long illiquidity (junk and small caps) is killing returns – short lower-highs; cover lower."

 

We're already seeing the air start to come out of this week's bounce. The key question for investors now: "Are you bearish enough?"

 

Watch the video below where McCullough explains why he's the most bearish guy on Wall Street.

 

 

stick with us. It's getting nasty out there.


Initial Claims | At the End of the Cycle Without a Paddle

Takeaway: We're late in the cycle and the Fed has little room to maneuver. This is (and should be) causing alarm for most Financials investors.

Initial Claims | At the End of the Cycle Without a Paddle - Claims1

 

 

This week we want to take a step back from the high frequency claims data and take stock of where we are in the cycle, and consider what policy tools the Fed has at its disposal.

 

Where are we in the cycle? As the chart below shows, we're now in month 23 of initial jobless claims running at a sub-330k level. The last 3 cycles have seen the expansion last 24, 45 and 31 months at a sub-330k level, with an average of 33 months. Coupled with the slew of weak economic data coming from the industrial/manufacturing/energy side of the economy, we think it's a better than bad bet that economic contraction isn't far away. 

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims18

 

What can the Fed do about it? We think the cycle being late warrants asking the question: What can the Fed do? The table below shows that the Fed's average response to the past seven recessions has been a -750 bps rate cut. However, it is facing a significant shortfall in its accommodative ability with the Fed Funds rate currently sitting at around 0.36%. In other words, it's one and done to get back to zero, and then it's QE or NIRP. As we show at the end of this note, the yield spread is already at a post-crisis low (108 bps), which is ratcheting up the pain for banks. 2016 was supposed to be the year when this pressure finally turned tailwind, but instead it's increasingly looking like the opposite is the most probable course for 2016 and beyond. 

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims17

 

Meanwhile, the three charts below show that claims in energy states continue to grow, rising most recently at a +14% year-over-year rate.

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims12

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims13

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims14

 

The Data

Initial jobless claims fell 7k to 262k from 269k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -8k WoW to 273.25k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -2.9% lower YoY, which is a sequential improvement versus the previous week's YoY change of -1.5%

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims2

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims3

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims4

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims5

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims6

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims7

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims8

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims9

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims10

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims11

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims19

Yield Spreads

The 2-10 spread rose 10 basis points WoW to 108 bps. 1Q16TD, the 2-10 spread is averaging 114 bps, which is lower by -22 bps relative to 4Q15.

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims15

 

Initial Claims | At the End of the Cycle Without a Paddle - Claims16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


HedgeyeRetail (2/18) | WMT - More Bearish on the Company than the Stock

Takeaway: WMT had already lowered the bar to where it won't hit 2015 earnings until at least 2019. We're More Bearish on the Company than the Stock.

WMT - We're More Bearish on the Company than the Stock

 

These results in the US were ho hum from where we sit. The comp and revenue miss was written in the cards given the results we've seen posted across the board at M, KSS, COST, [insert other US levered retail name here]. Guidance for the year for 0.5% implies a sequential deceleration in the US biz coming off an investment year in employees, stores, and e-commerce which would imply a less than bullish picture on US consumption, or just flat-out conservatism. We think it's the former. Current investments are all about driving the top line despite the drag to margins, earnings, and returns. If that doesn't work then WMT is in even more trouble.

 

But, WMT, unlike most of the names in retail, has already lowered the bar to a point where it won't hit 2015 earnings levels until at least 2019. With that much bad news priced in even at the mid-60's it's hard to be more bearish on the stock when there are so many in the space with more earnings downside.

 

Other read-throughs…

1) E-commerce sales totaled $13.7bn for the year or about 2.9% of sales up from $12.2bn or 2.5% last year. Considering that the company invested about $900mm in that channel alone in FY16, that's not a great ROI. We get that WMT is investing to put the building blocks in place for the future, but when we read comments by the CFO that he '...would have liked to have seen higher e-commerce sales growth this quarter', we have to wonder if the $1.1bn the company plans to invest in FY17 is enough to catch WMT up to the rest of the industry. We're inclined to think its not and that has negative implications for the rest of the players who are trying to play catch up, i.e. Target.

 

2) Fx - WMT guided to a $12bn hit to the top line from Fx in FY17. That's down from the $17bn the company felt in the fiscal year just reported, but its certainly still a sizable headwind. As the bellweather for global retail we think that's extremely bearish for the rest of the space. Looking quickly at the revenue ramp expected for PVH, VFC, and TIF, consensus is expecting a nice sequential ramp in sales from 4Q into 2H16 due in large part to lapping a strong dollar. But, based on WMT's commentary today...that's not going away.

 

3) How is this not bad for TGT? We know the composition of investments (wages, e-comm, stores, etc.) and the earnings drag being felt as a result at WMT. Add on a tepid consumer environment and it doesn't add up well for TGT. The low hanging fruit has already been picked by Cornell in the form of Canada, lapping the data breach, sale of the pharmacy unit, and now the company will need to invest if it wants to realize its goal of 3% sales growth. That doesn't appear to be in the current street numbers.

HedgeyeRetail (2/18)  |  WMT - More Bearish on the Company than the Stock - 2 18 2016 chart1

 

FL - Many ‘Un’happy Returns

Foot Locker’s big capital spending plan announced last night is anything but good for the financial return profile, and the stock. The company’s capex number for the upcoming year is expected to clock in at $297mm. That’s the most FL has spent since 1999, and it represents a 26% increase from the already-elevated levels we saw in 2015.

For Link to the Full Note: CLICK HERE

 

JWN - Time vs. Price

This is a multi-duration call. Bearish over the near-term as macro headwinds put earnings at risk. But, levers are there once the consumer stabilizes/recovers. The reality is that this is the only department store that really needs to exist.

For Link to the Full Note: CLICK HERE

 

NKE - Nike has terminates commercial deal with Manny Pacquiao following controversial statements

(http://www.bbc.com/sport/boxing/35600341)

 

M - Macy's to offer Shaun White men's line after he ended 8-year relationship with TGT

(http://wwd.com/menswear-news/retail-business/macys-shaun-white-mens-capsule-wht-space-10357094/)

 

AdiBok - Adidas hired ex LULU CEO Christine Day as Strategic Advisor, showing it’s getting serious about women’s athletic business

(http://www.wsj.com/articles/adidas-hires-former-lululemon-ceo-as-strategic-adviser-1455723755)

 

AMZN - Amazon is quietly inviting drivers for new "on demand" service to deliver its standard packages -- service will improve speed and margins

(http://www.reuters.com/article/us-amazon-com-logistics-flex-idUSKCN0VR00O)

 

OLLI - Ollie’s Bargain Outlet majority owner looking to reduce stake, Ollie's plans secondary stock offering for 11% of company

(http://www.chainstoreage.com/article/ollies-owners-ready-reduce-interest-outlet-chain)

 

BBW - Build A Bear Workshop holder nominates 2 candidates to board

(https://www.sec.gov/Archives/edgar/data/1113809/000105885416000051/exhibit_99.htm)

 

HBC - Saks Fifth Avenue making entry into Canadian market today

(http://www.chainstoreage.com/article/saks-sets-opening-dates-canada)

 

SHLD - Kmart sourcing 'extreme-value' deals by purchasing the inventory of liquidated companies

(http://www.chainstoreage.com/article/kmart-enters-extreme-value-game-digital-twist)

 

Hhgregg announces that CFO Robert Riesbeck will act as interim CEO

(http://www.retailingtoday.com/article/hhgregg-names-interim-ceo-vows-continue-transformation)


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 80.64%
  • SHORT SIGNALS 78.57%
next