Initial Claims | Resilient

Takeaway: The labor market remains resilient with initial claims and Challenger job cuts showing little sign of deterioration.

The first chart below from our Macro team looks at the trend in Challenger job cut announcements. March job cuts ex-energy came in at 40.5k, which, while up 32% year over, is roughly flat with recent trends. Meanwhile, the energy patch also appears to be settling down, at least from a rate of change standpoint. The March energy patch job cut announcements of 7,747 were down from February's high watermark of 25,051, but remain broadly elevated. 


Initial Claims | Resilient - Claims17


Six of the eight states in our "Energy State" basket continue to show rising initial claims on a Y/Y basis - the exceptions being Texas, which is 2% lower Y/Y, and West Virginia (-21%). The sharpest increases in claims remain in North Dakota where claims are running +28% Y/Y.


At the national level, claims rose 11k W/W, but remain low at 276k. 


Initial Claims | Resilient - Claims12


Initial Claims | Resilient - Claims13


Initial Claims | Resilient - Claims14


The Data

Initial jobless claims rose 11k to 276k from 265k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -0.25k WoW to 263.25k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -7.3% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -10.9%


Initial Claims | Resilient - Claims2


Initial Claims | Resilient - Claims3


Initial Claims | Resilient - Claims4


Initial Claims | Resilient - Claims5


Initial Claims | Resilient - Claims6


Initial Claims | Resilient - Claims7


Initial Claims | Resilient - Claims8


Initial Claims | Resilient - Claims9


Initial Claims | Resilient - Claims10


Initial Claims | Resilient - Claims11


Initial Claims | Resilient - Claims19

Yield Spreads

The 2-10 spread rose 5 basis points WoW to 107 bps. 1Q16TD, the 2-10 spread is averaging 108 bps, which is lower by -28 bps relative to 4Q15.


Initial Claims | Resilient - Claims15


Initial Claims | Resilient - Claims16



Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT


Call Invite | Q2 2016 Macro Themes Conference Call (4/7/16 at 11:00AM ET)



Watch a replay below:

We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Thursday, April 7th at 11:00AM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.




#TheCycle:  With the recessionary industrial data ongoing, employment, income and consumption growth decelerating, corporate profits facing a 3rd quarter of negative growth and Commercial and Industrial  credit tightening, the domestic economic, profit and credit cycles are all past peak and continue to traverse their downslope.  We’ll update our cycle view and detail why growth slowing  – and its associated allocations – remains the call as the U.S. economy faces its toughest GDP comp of the cycle in 2Q16. 


#BeliefSystem: The notion that central bankers are increasingly pushing on a string is being progressively priced into global financial markets – with one lone holdout: U.S. equities. While we admire the blind faith of domestic stock market operators in Yellen’s ability to keep “the game” going, we are keen to cite specific risks that marginally dovish policy in the U.S. will fail to overcome the depths of the domestic economic, credit and corporate profit cycles.


#DemographyDebates: We’re entering an election season that could hugely impact markets – and probably not in a good way!  What’s the impact of a Clinton or Trump victory and how will market practitioners react?  We’ll also discuss housing and the impact of millennials and immigrants in shifting demand.  Finally, we’ll exam a recurring theme of U.S. growth slowing – what’s under the hood for earnings and inflation expectations in 2016?






As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.


Kind regards,


-The Hedgeye Macro Team

Proactively Prepare

Client Talking Points


Unlike the slow-volume squeeze U.S. equity beta had off those crashy FEB lows, Japan really sucked wind throughout Q1. The Nikkei closed down for 3 straight days to end the quarter right back in crash mode (-20% since the bubble highs in Global Equities of July 2015) – we remain bearish (short) Japan and one of its ETF manufacturers (DXJ and WETF).


Forget Q2’s prospects for one more day, Europe was flat out ugly for Equity Bulls too – Spain leads losers this morning -1.5% and is in a race with Italian stocks for biggest draw-down from 2015 highs (both -25%!); they’re totally not into the Yellen Dollar Devaluation (Euro Up) thing; #GrowthSlowing in Europe remains our fundamental call there.


We finally added QQQ to the short side (yesterday in Real-Time Alerts) – having missed shorting the Nasdaq at the beginning of Q1, we’ll have to enter the game with it already -2.7% YTD. Plenty of markups in consensus long ideas from the 2013-2015 ramp in growth stocks; heading into Q2 (we have Street low U.S. growth forecasts), we’re shorting growth (QQQ) vs. our core Long slow-growth macro ideas (TLT + XLU + GLD).


*Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

CME Group (CME) put up a decent fourth quarter earnings print with a slight revenue and earnings beat. Not that we put much weight on what happened last quarter but trends into the new operating period are looking even better. The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, at over 111 million contracts.


Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials.


We continue to like General Mills (GIS) as one of the best large cap names in the packaged food space. With that being said, the third quarter was not without its noise surrounding the numbers; Green Giant divestiture, Walmart clean store policies, foreign currency exchange, and grain merchandising just to name a few, muddied the waters. But digging through the noise, this is a business that is truly turning a corner. When they set sail on fiscal year 2016 back in June of 2015, we knew this was not going to be an easy ship to turn towards success. Now, with many key product platforms turning (through strong product innovation and renovation) in the right direction and operational improvements implemented through cost savings initiatives, GIS is on the cusp of success. We will be measuring this success by realization of sustained top line growth in the low single digit range.


In our model the second quarter is the toughest compare on both GDP and U.S. corporate profits so we want to be very careful going into that and be positioned defensively. Stay long Long-Term Treasuries (TLT).


While small/mid cap U.S. Equities reverted to their bear market mean last week (Russell 2000 down -2.0% on the week and -16.7% since US Corporate Profits peaked in Q2 of 2015), so did a few other US Equity Market Style Factors that had had a big 1-month bounce:

  1. High Beta stocks were -2.0% on the week
  2. High Leverage (Debt/EBITDA) stocks were -1.9% on the week
  3. High Short Interest stocks were -1.7% on the week

Three for the Road


NEW VIDEO: #Millennials Gone Mild: The Investing Implications… @KeithMcCullough



The smallest deed is better than the greatest intention.

John Burroughs  


Spotify raised $1 billion in convertible debt from TPG,  Dragoneer, and clients of Goldman Sachs. TPG and Dragoneer get to convert the debt to equity at a 20% discount of whatever share price Spotify sets for an eventual IPO. And if it doesn’t IPO within the next year, that discount goes up 2.5% for every additional six months.

FL | Nike Found Its Ceiling

Takeaway: Nike officially hit a ceiling at FL. Neutral event for NKE. Super bearish for FL.

Here’s a bearish chart for FL, and based on our conversations with investors over the past few days, this one’s squeaking past the goalie. 

In Foot Locker’s 10K, the company disclosed that the percent of its purchases from Nike went DOWN in 2015 to 72% from 73% a year earlier. A whopping 1%, you say? Does this REALLY matter? Yes. And here’s why…

1) The share gain for Nike from 50% to 73% has been the primary driver of FL’s gravity-defying earnings recovery. Nothing that Foot Locker sells drives more traffic and boosts ASP more than something with a Swoosh on it.

2) We think that Nike will add $10bn in online sales by 2020, and that’s off a base of $32bn. How we do the math, Brick&Mortar sales are likely to be down every year – unless industry sales grow in excess of 6% (and that only happens when we’re at the peak of a cycle). And let’s keep in mind that it’s not only Nike that is shifting online.

3) At the same time Nike’s percentage showed that 73% is likely the ceiling at Foot Locker, we actually saw FL’s Footwear Ratio go up 300bp to 82%. So it sold more footwear, but less of it was Nike (thank you Steph Curry/UA)

4) FL bulls might argue that the company still comped well with less Nike going through the pipe. Yes, that’s true. But in the US, FL comps last year went from ‘low DD’ in ’14 to ‘high singles’ in ’15. We’ll call that a 300-500bp slowdown in comps, with just  100bp less in Nike product as a percent of total. What happens if (when) the Nike ratio goes down to a healthier (but still unhealthy) 60%? FL comps are solidly negative in that scenario – there’s really no way around it. With no square footage growth, peak gross margins, higher investment in SG&A and capex to compete against its vendors, this could easily cost FL 1,000bp in RNOA, $2-$3 in EPS, and 40% of its market cap.


FL remains at the top of our Best Ideas Short list.


FL Showed Us The Nike as % of Total Purchases Have a Ceiling in Low 70s. That’s Bearish From Here.

FL | Nike Found Its Ceiling - 3 31 2016 chart1


People Think that Ken Hick’s Owns FL’s Recovery. He Was Good. But Nike Was Better.

FL | Nike Found Its Ceiling - 3 31 2016 chart2

CHART OF THE DAY: Our Freshest Idea On The Short Side

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. 


"... I shorted it in Real-Time Alerts yesterday and here’s why:

  1. We have the most bearish forecast on Wall Street for US Growth for Q2
  2. I want to be short High-Beta, High-Multiple, Over-Owned Growth in Q2
  3. My immediate-term TRADE signal said short some within its developing bearish @Hedgeye TREND"


CHART OF THE DAY: Our Freshest Idea On The Short Side - 03.31.16 chart

Drawing Trends

“Trends. Trends are what you’re looking for.”

-David Harding


With some CTAs and Quants having a good run here to kick off 2016, last night I reviewed an excellent interview Lasse Heje Pedersen did with long-time British math/science/markets man, David Harding, who runs Winton Capital Management in London. Since I love studying other people’s #process, I was particularly interested in how Harding came up with his:


“I was looking at long strings of numbers going up and down and drawing charts. I was trained as a scientist, and I had learned a lot in my physics degree about methods of analyzing data… and I couldn’t help but wonder if this could be applied to these time series. I spent two years in the mid-80s drawing charts by hand every day which is a very laborious process. That certainly gave me a lot of time to look at time series. When you press a button on your computer and a chart appears, you don’t interact with the data in a very detailed way. Whereas if you draw these graphs day by day by hand, you reflect on the empirical nature of the data more deeply.” -Efficiently Inefficient (pg 226)


Writing it down – day by day, by hand. Now that is my type of #process! I’m hardly David Harding, but this is precisely what I believe to be one of my advantages vs. our competition in the Macro-Strategist space. I have written down every relevant number, every market day, of my professional life. I know the time series of market prices, deeply. But I believe that only gets me prepared for game time. How I play the game from there is entirely more challenging.


Back to the Global Macro Grind


The most causal intermediate-to-long-term TREND (not to be confused with 3-6 week bounces in US equity centric charts) in all of Global Macro has been #GrowthSlowing from its 1H 2015 peak.


Drawing Trends - Growth cartoon 06.03.2015 large  1


If you have friends in our profession who don’t quite get this yet, give them 3 pieces of paper and have them draw what Long-term US Treasury (and Global Sovereign) Bond Yields have done on a 6, 12, and 18 month duration, then connect the dots.


My dots, not to be confused with the erroneous Fed forecast “dots” of what didn’t happen, are the dots you can draw on a time-series of data that identifies lower-highs and lower-lows. Those are called Bearish TRENDs @Hedgeye.


*A Bullish TREND @Hedgeye = upside down of that = Higher-lows, Higher-highs (across intermediate-term to long-term durations)


While it may be more challenging for your friends to see this in the mother of all navel-gazing “charts” (Dow Bro), the Bearish TREND in a wider sample size of stocks (Russell 3000) is obvious. That peaked when the US GDP & Profit Cycle did in Q2 2015.


Not to be confused with the obvious, the Bearish @Hedgeye TREND in the following major Global Equity Indexes is VERY obvious:


  1. Japanese Stocks (Nikkei down another -0.7% overnight and -19.7% since July 2015)
  2. German Stocks (DAX down another -0.6% this morning and -19.4% since April 2015)
  3. Italian and Spanish Stocks (MIB and IBEX both down -24-25% since their 2015 #bubble highs)


Bubbles? Yes. We were the only firm to identify many market things in 2015 as bubbles (see hashtag #Bubbles @Hedgeye Global Macro Themes call from Q4 2014 for timestamps) after being one of the most vocal US #GrowthAccelerating bulls in 2013.


What former bullish TREND bubbles have imploded?


  1. Commodities
  2. Emerging Markets
  3. China
  4. IPOs
  5. MLPs
  6. Junk Bonds
  7. Ackman
  8. Etc.


Oh, right. If you go back to the middle of February 2016 (I know, it was so long ago and shouldn’t be considered a bearish TREND anymore, Ex-Energy, right?), the weekly closing low for the Russell 2000 was 971.


Q: What was its % crash/decline from its all-time #bubble high of July 2015?

A: -25%


Right in line with where Europe’s ugliest country indexes are right now – isn’t that ironic? Not at all. Since the rate of change in US #GrowthSlowing should mostly affect the securities (debt or equity) most levered to a US (not Chinese or Russian) domestic slow-down, the Russell has drastically underperformed her International Sister, the SP500.


To be fair to the CTAs and Quants who don’t really do fundamental research and focus mostly on shorter-term price-momentum, it’s a lot easier to chase charts higher (or press them lower) after they’ve started moving than it is to call tops and bottoms.


As long-time readers of my rants know, tops and bottoms are processes, not points. And I humbly submit you need both a long-cycle fundamentals research AND a quantitative signaling process (multi-duration) to consistently identify them.


Just to give you my freshest idea on that front – how about shorting the Nasdaq (QQQ)?


Since I missed making the short call on the QQQ in July of 2015 (I said short SP500 and Russell instead), and the Nasdaq is -6.7% from that #Bubble peak, I missed the 1st part of the move. But I don’t want to miss the next one.


I shorted it in Real-Time Alerts yesterday and here’s why:


  1. We have the most bearish forecast on Wall Street for US Growth for Q2
  2. I want to be short High-Beta, High-Multiple, Over-Owned Growth in Q2
  3. My immediate-term TRADE signal said short some within its developing bearish @Hedgeye TREND


While your friends are doodling on long-term time-series, ask them if someone were to be right on US #GrowthSlowing at an accelerating rate in Q2, if they’d want to be buying QQQs at their 1st trending series of lower-highs since 2008?


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.79-1.90%

RUT 1068-1118


Nikkei 161

DAX 99

VIX 13.02-19.92
Oil (WTI) 36.70-40.22


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Drawing Trends - 03.31.16 chart

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