While Wall Street trumpeted Friday's headline 255,000 jobs number as "good," the year-over-year rate of change continues to slow from 2.3% in February of 2015 to last week's reading of 1.72%.
In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses the so-called "gig economy." A broad measure of the gig economy shows that it accounted for as much as 40% of the workforce in 2010, up from 30.6% in 2005. Howe dissects what this means for the U.S. economy and the broader implications for investors.
Takeaway: Tallgrass Energy CEO David Dehaemers accused Hedgeye Energy analyst Kevin Kaiser of libel saying that he fabricated information in a note.
"Tallgrass Energy Partners LP Chief Executive Officer David Dehaemers had more on his mind than earnings during the company’s quarterly call with analysts on Wednesday.
Dehaemers took a break from talking strategy to accuse Hedgeye Risk Management analyst Kevin Kaiser of libel. Ripping into what he described as “people who act like analysts,” Dehaemers said Kaiser falsely reported on Aug. 1 that Tallgrass faces a potential contract restructuring with Bonanza Creek Energy Inc. Dehaemers said Bonanza is not a shipper on the company’s Pony Express oil pipeline. Kaiser lashed back on Twitter, citing Bonanza filings that appeared to back up his report.
On Thursday, James Edwards, Bonanza’s investor relations director, said by phone the oil explorer uses the pipeline through a third party."
Below are the key excerpts from Bonanza (BCEI) filings cited by Kaiser:
... And here's Tallgrass CEO David Dehaemers' comments about Kaiser's research from the conference call transcript:
"And you probably wonder now what am I talking about; well I'm going to tell you specifically what I'm talking about. On Monday, July or August 01, at 8.40 p.m. an analyst from Hedgeye Energy [ph] sent an unsolicited email to, I don't know how many people, but it clearly made its way to us. It went to many of our investors. It went to many of the regulated analysts or the people that act like analysts that cover our company...
You all know what is funny about this? Frankly, it is not funny. What it is, is libel. And the reason it is libel is because Bonanza Creek is not a shipper on Pony, they have never shipped one barrel on Pony Express. They certainly aren't a committed shipper.
I would suggest to people that write things about our company, be that in social media or as purported analysts, get their facts straight before they go libeling our company because they are liable for that.
I will end with my message being this. We work really hard around here for a lot of people that have a lot of money invested in our future. People are obviously welcome to believe our story, not believe it, buy our stock, sell it short, whatever. What you aren't able and have the right to do is make up your own set of facts and then slander us. If this continues we will have other means for which we will address this in the future."
Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.
Takeaway: The housing bubble in Australia is bad news for the country's big banks.
Editor’s Note: Below is a brief excerpt from an institutional research note written by Hedgeye Financials analyst Josh Steiner discussing ME Bank’s semi-annual report called the Household Financial Comfort Report which details the results of a survey that gathers responses from a significant sample size of 1,500 households.
This is an update to a previous piece, “Banks on the Barbie: Four Short Ideas In Australia’s Housing Bubble.” To access our institutional research email firstname.lastname@example.org.
The red line in the chart below represents the portion of the 65% of indedbted households that expect they will be unable to make their minimum payments. After being virtually flat for the entirety of the survey’s life, that line has risen twofold in the last six months from 5% as of December 2015 to 10% as of June 2016. To be clear, that means that 10% of the 65% of Australian households with debt—6.5% of all households—expect to default in the next 6-12 months.
**To access our institutional research email email@example.com.
Takeaway: Credit has supported HH spending in the face of slowing income growth. Credit growth slowed for a 3rd month in June & may now be past peak.
Together with the NFP data for July, the Consumer Credit report for June released on Friday provided notable updates on the capacity for domestic consumerism.
Because household spending remains the singular GDP support – a reality that is likely to persist given global DM weakness and ongoing recessionary capex spending domestically - the trend and outlook for consumption growth remains of obvious import.
Aggregate Income | NFP Implied Growth = Flat: Income growth defines the capacity for sustainable consumption growth for most households. With payroll growth slowing over the last four quarters (YoY growth decelerated further in July despite the “good” absolute gain) and weekly hours largely flat, the modest acceleration in wage growth has not been enough to offset the deceleration in employment and aggregate income growth has slowed. Consumption growth, unsurprisingly, has shown a similar deceleration. *Note: for our purposes here, we are defining aggregate income growth as aggregate private sector salary & wage income.
The sum of aggregate hours growth + earnings growth in the NFP release offers a preview of the official income and spending data released later in the month. The NFP implied figures aren’t a precision projection but they do offer an insightful directional signal. NFP data for July imply flat sequential year-over-year growth in aggregate income. Assuming static savings and credit (more below) trends, consumption growth should reflect a similar 2nd derivative trend.
Consumer Credit Growth = Past Peak?
Consumption Capacity | Income + Credit = ↓: Holistically, and over shorter and medium terms, spending capacity is defined by income and credit growth. With employment growth slowing, wage inflation and credit growth, collectively, need to rise as fast as payroll growth slows in order to maintain the current pace of household spending growth (again, assuming a roughly flat savings rate). After supporting spending over the last year and a half in the face of decelerating aggregate income growth, revolving credit growth has now been trending lower for the last three months.
Employment growth will continue to slow and if wage inflation continues to show only crawling improvement, consumption growth will not be able to maintain its current pace if credit growth continues to decelerate – particularly with consumption facing its toughest compare of the cycle in 3Q16.
Christian B. Drake
In this brief excerpt from The Macro Show earlier today, Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale discuss Friday’s Jobs Report. Spoiler alert: #EmploymentSlowing.
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