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Will Bernie Bow Out? ... Trump's Got "The Best Toys"

Below is a brief excerpt from our Potomac Research Group colleague and Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

BERNIE'S END GAME?

 

Will Bernie Bow Out? ... Trump's Got "The Best Toys" - bernie sanders

 

Bernie Sanders' NY loss was crushing - not just for losing in the state where he was born, raised, and claimed he would pull an upset, but because it dashed any reasonable chance for him to eclipse Hillary Clinton in pledged delegates. Now he must choose whether to up the ante with attacks on Clinton, or pull a 180 and return to his core, issues-based movement. His campaign is sending mixed signals on whether he will remain in the race after the conclusion of next week's Northeast primaries - where Clinton has healthy leads. This could be a make or break week for his continued candidacy, and going negative again might be his only shot - yet can he justify doing so just as there are signs that 83% of Sanders-leaning Democrats would coalesce around Clinton? Party unity is on the line.

DELEGATE DRAFT DAY

 

Will Bernie Bow Out? ... Trump's Got "The Best Toys" - ted cruz up

 

As it stands now, Donald Trump is 392 delegates shy of the 1237 needed to secure the nomination the old fashioned way, but he is poised for another huge set of wins in CT, MD, DE, PA, and RI next week. Whether or not Trump goes to Cleveland with a delegate majority, some pols and pundits are suggesting that he could still clinch the nomination on the first ballot even if he is 100-150 delegates short.

 

This is due to the unbound "free agent" delegates that will be available, and are sure to be wined-and-dined by Trump and Ted Cruz for their support - though Trump's lead and his claim of having "the best toys" means he may have more to offer.   

HOOSIER DADDY?

There may be five more Northeastern states voting before May 3rd's IN contest, but the focus of the Trump and Cruz campaigns has shifted back to the Midwest. IN is being compared to WI - where Cruz pulled off a strong victory - and if he has any hope of blocking Trump from winning 1237 delegates, he needs to sweep the Hoosier State. But this is far from certain - IN's demographics are more favorable to Trump than WI's were, and the anti-Trump forces have yet to organize there. As important as winning IN is to Cruz's new strategy, it may be more vital to Trump and his ability to win a delegate majority without it.


About Everything: The Golden Age of Home Improvement

Takeaway: Buying a home is out, remodeling one is in.

Editor's Note: In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why consumer spending on home improvement is outstripping GDP growth and the key demographic trends behind this shift.

 

About Everything: The Golden Age of Home Improvement - z home imp

WHAT’S HAPPENING

 

Three years ago, in a report called “The Boom in Home Remodeling,” I predicted that this was an industry about to take off. Now, it is airborne. Total spending on home improvement, well above $300 billion (and perhaps hitting an all-time high in 2016), continues to grow faster than GDP.

 

What’s more amazing is that the industry has expanded in the face of a crumbling housing market. Residential construction spending plunged a whopping 60 percent from peak to trough during the Great Recession. Home improvement spending’s fall? Just 13 percent. 

 

About Everything: The Golden Age of Home Improvement - about everything slide 3

 

In housing, single-family homes (not multi-units) have lagged the most in recent years. But in home improvement, single-family is the faster horse.

 

About Everything: The Golden Age of Home Improvement - about everything slide 4

 

Equity prices in the industry reflect this boom—and the big chains are really riding the wave.

 

About Everything: The Golden Age of Home Improvement - about everything slide 5

 

Lowe’s stock prices have more than doubled over the past four years. Home Depot shares have nearly tripled in value. Lowe’s plunked down $2.3 billion to acquire the Canadian giant RONA. And thanks to home services platforms like Pro.com, even more industry revenue gets funneled to the big guys.

 

About Everything: The Golden Age of Home Improvement - about everything 4 21 callout

WHY IT’S HAPPENING: DRIVERS

 

The rising average age of homes. While sprawling infrastructure projects once lowered the average age (and created new housing demand) by demolishing wide swathes of residences, those days are long gone. About 63 percent of the nation’s houses are at least 30 years old, up from 47 percent in 1995. 

 

Today’s homes, moreover, are better constructed, allowing for indefinite improvements rather than knocking down and rebuilding. Thus, in some ways, home remodeling is actually replacing new home sales.

 

Falling mobility rates. A dwindling share of Americans move each year (a trend that kicked off in the 1980s). Falling mobility is partly due to an aging population and partly due to lower mobility at each age. More and more homeowners are in their current properties for the long haul—and are incentivized to spend on home remodeling.

 

Economic recovery. Homeowners who put off large discretionary projects during the Great Recession finally have the cash to take on those projects. Discretionary spending on remodeling is on the rise for the first time in a decade.

 

Generational change: aging-in-place Boomers. Boomers account for almost half of all dollars spent on home remodeling.

 

About Everything: The Golden Age of Home Improvement - about everything slide 6

 

They’re aging in place, working longer in retirement, and putting up their adult children who are just fine sticking around the nest.

 

About Everything: The Golden Age of Home Improvement - about everything slide 7

 

Generational change: DIY Xers. Most Gen-Xers will gladly save money by buying an imperfect or under-finished home—and then fixing it up on their own over time. They value personalization and often trust their own talents more than those of a homebuilder. In home remodeling (as in any other area of their lives), Xers wonder why they should call a professional when they can do the job themselves.

 

Generational change: cohabiting Millennials. Every Millennial who lives with mom or dad is one less buyer of a new home and one more excuse to remodel an existing home.

 

About Everything: The Golden Age of Home Improvement - about everything slide 8

 

Even when they do move out, Millennials tend to stay nearby—enabling them to get parental advice or funding when remodeling their own homes or to help their parents when remodeling theirs. When Millennials remodel, they need someone to show them the way: Lowe’s recently released how-to tutorials on Vine for Millennial DIYers. N2Care even builds “granny pods” so that Millennials can have their aging parents within reach. 

BROADER IMPLICATIONS

 

Affluent Boomer demand is fueling the industry’s growth. High-end Boomers unfazed by the Great Recession have spent heavily on home improvement even while banks foreclosed on younger and poorer consumers. Affluent coastal metro areas in the Northeast (in cities like Boston, New York, and Washington, D.C.) and in the West (Seattle, San Jose, and Phoenix) continue to be hotbeds for these big spenders.

 

About Everything: The Golden Age of Home Improvement - about everything slide 9

 

 

Airbnb property owners are renovating their rented spaces. Private residences are taking over a growing chunk of the accommodation market. Homeowners who never had to worry about hotel industry regulations are now rebuilding stairways, constructing windows, and adding insulation to bring their properties up to code. Not to mention the cosmetic upgrades (like repainting and installing new countertops) designed to boost appeal.

 

Home remodeling firms are betting big on technology. Lowe’s and Microsoft have teamed up to create an in-store augmented reality experience that will allow shoppers to “try out” different cabinets, finishes, and more before buying. IKEA has created an online VR app that allows website visitors to customize a sample kitchen. And Home Depot carries scores of smart home products, from learning thermostats to precipitation-driven irrigation systems. 

TAKEAWAY

 

Remodeling firms should be mindful of the generation they’re targeting:

 

  • Boomers are building onto their homes to make room for the kids (and grandkids). They also need “universal design” accessibility upgrades, from wheelchair ramps to widened hallways.
  • Xers spend heavily on no-frills DIY. This generation is the most price sensitive.
  • Millennials want high-touch (as well as high-tech) services. They are looking for an expert to show them the way. 

 

About Everything: The Golden Age of Home Improvement - about everything slide 10

 

For more, watch Neil Howe in the associated About Everything video.

 


3 Economic Charts Of Concern

Takeaway: The Fed has little or no juice left.

"This morning's data confirms our view that the economy continues to slow on a trending basis and is set up to slow fairly sharply here in Q2," Hedgeye Senior Macro analyst Darius Dale wrote earlier this morning.

3 Economic Charts Of Concern - GDP cartoon 05.29.2015 large

 

Here's more analysis from our Macro team in a note sent to subscribers earlier this morning:

 

"Since the late-September lows, the S&P 500 has held a reasonably tight positive 0.75 correlation with the Citi U.S. Economic Surprise Index, which itself has rallied hard off it's early-February lows as U.S. economic data stabilized in rate-of-change terms and perpetuated a waning of recession fears.

 

3 Economic Charts Of Concern - s p citi surprise

 

Now, a topping process in the latter index appears to have gotten underway over the past two weeks, as most recently highlighted by this morning's meaningful misses in the Chicago Fed National Activity Index and the Philly Fed Business Outlook Survey. We reiterate our view that [pending] dour economic data itself is the catalyst for the market to decline from here." 

 

Digging deeper into the data...

 

As you can see below in the "high-frequency" data series that we track for the U.S. economy, many of these indicators stabilized on a sequential (month-over-month) basis but are in the red versus their 3-month average:

 

Click image below to enlarge

3 Economic Charts Of Concern - U.S. data

 

As Dale points out, dovish Fed commentary can't add much more juice to the markets. The most recent read on implied yield on Fed Fund futures suggests investors don't see a rate hike until December 2017.

 

3 Economic Charts Of Concern - Chart of the Day 4 20

 

"There's no more juice left to squeeze out of rates markets w/ dovish talk," Dale writes. "She actually has to do QE4 to get rates spreads to compress further from here. QE4 before the crash?"

 

Yet more reasons why we're holding the line on our bearish views.

 

For more...

 

Watch Dale in the video below, "U.S. Economy Enters Most Difficult Part of Cycle":


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[UNLOCKED] Keith's Daily Trading Ranges

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.

 

Subscribers now receive risk ranges for 20 tickers each day -  the last five of which are determined by what's flashing on Keith's screen and by what names subscribers are asking about. Click here to subscribe.

 

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INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.87 1.69 1.85
SPX
S&P 500
2,036 2,118 2,102
RUT
Russell 2000
1,089 1,159 1,142
COMPQ
NASDAQ Composite
4,845 4,999 4,948
NIKK
Nikkei 225 Index
15,583 17,448 16,906
DAX
German DAX Composite
9,497 10,544 10,421
VIX
Volatility Index
12.82 18.40 13.28
USD
U.S. Dollar Index
93.77 95.18 94.47
EURUSD
Euro
1.12 1.14 1.13
USDJPY
Japanese Yen
107.51 110.74 109.79
WTIC
Light Crude Oil Spot Price
39.41 44.54 43.97
NATGAS
Natural Gas Spot Price
1.86 2.23 2.18
GOLD
Gold Spot Price
1,225 1,269 1,245
COPPER
Copper Spot Price
2.07 2.27 2.23
AAPL
Apple Inc.
105 110 107
AMZN
Amazon.com Inc.
586 647 633
MCD
McDonald's Inc.
126 130 128
XLU
Utilities Select Sector SPDR
47.81 49.65 47.93
NFLX
Netflix Inc.
92 102 96
KMI
Kinder Morgan Inc.
17.02 19.25 19.00


CHART OF THE DAY: S&P 500, Shiller PE & Forward-Looking Returns

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Financials analyst Josh Steiner. Click here to learn more.

 

"... Now consider the longstanding relationship described by Cliff Asness between current CAPE ratio levels [aka Shiller PE] and forward 10yr market returns (HERE). What he shows is that there’s a near perfect relationship between forward 10yr returns on the S&P 500 and starting CAPE ratio multiples over the last 85 years (see table below).

 

The market is currently trading at a CAPE ratio of 26.4x, which puts it in the 10th [the most expensive] decile. Forward 10yr real returns from this decile have averaged just +0.5% per year over the 1926-2012 period. The best period saw returns for this decile of +6.3% per year, while the worst saw losses of -6.1% per year."

 

CHART OF THE DAY: S&P 500, Shiller PE & Forward-Looking Returns - Cliff Asness Guide to CAPE implied future returns

Source: Cliff Asness, AQR (An Old Friend: The Stock Market’s Shiller P/E)


REPLAY | Healthcare Earnings Preview of Top Ideas and Q&A - $ZBH $ATHN $MDRX $MD $HOLX $ILMN

Key Earnings Previews Ahead of Healthcare Earnings Season

CLICK HERE to access the associated slides.

 

 

 

Join Hedgeye Healthcare Sector Head Tom Tobin and analyst Andrew Freedman today at 12:00PM ET as they discuss their top ideas and what they will be focused on as earnings season progresses.

 

Topics will include:

  • ZBH: Read-through from SYK and JNJ earnings
  • ATHN: Tracker Update, will they miss the doc count?
  • MDRX: latest thoughts on attrition
  • MD: Maternity Tracker Update
  • HOLX: Facility Penetration by MSA
  • ILMN: Opportunity or is the end just beginning?

Have a question on a specific name? there will be a live q&A session at the end of the show!


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