Political uncertainty is at historic highs across the buyside and in corporate boardrooms. Trump or Clinton... you nauseous yet?
Takeaway: Trying to close a deal by the 3Q print seems too ambitious to be plausible, especially since its only real suitor may just have bowed out.
It's been a bad day for anyone who bought yesterday's pop in Twitter (TWTR). Shares are down -20% today, after Twitter takeout rumors were shot down.
Hedgeye Internet & Media analyst Hesham Shaaban has noted in the past that Twitter is struggling to monetize it's user base and reiterated yesterday that he doesn't think the company has "enough potential suitors to actually field a competitive bidding process." But he also warned that CRM’s hesitation to kill the TWTR rumor (despite mounting pressure on its stock over the past week) suggested that Salesforce CEO Marc Benioff could actually be interested.
However a few hours later, Benioff appeared to have gotten the message and was essentially forced to put that story to rest going live on CNBC saying: "[Twitter] is a great product. It's an exciting product, but obviously the business has a lot of challenges, very severe challenges."
Shaaban writes in a note sent to institutional subscribers earlier today: "If TWTR is still public by the 3Q print, it would effectively kill its own M&A prospects in the eyes of the street. Going back to our original thesis, if there is any whiff of potentially declining revenues in the near future off the 3Q print, we suspect TWTR will be on its own for a while”
We're guessing CEO Jack Dorsey wishes he never came back.
Takeaway: The U.S. labor market peaked in the first quarter of 2015. Raising rates into that is a bad idea.
The Federal Reserve is pinning its 2016 interest rate hike hopes on a strengthening U.S. labor market. We think that's a mistake. We've been warning that the jobs market is past peak and jobs growth will continue to slow.
Here's a look at the latest jobless claims data (as interpreted) by Reuters:
"The number of Americans filing for unemployment benefits unexpectedly fell last week to near a 43-year low, an indication of firmness in the labor market which may support an interest rate increase by the U.S. Federal Reserve this year."
Take a look at the chart below. It shows year-over-year growth in non-farm payrolls. As you can see, jobs growth peaked in 1Q15 and has rolled over ever since. (Once labor growth peaks, it doesn't come back... something to be aware of ahead of tomorrow's September jobs report.)
On The Macro Show this morning, Hedgeye CEO Keith McCullough responded to a subscriber's question about labor market strength.
Is this time different? Will labor market strength remain? And will the Fed raise rates as a result?
He pulled up a chart from our latest Macro Themes deck. It shows a 6-month moving average of jobless claims. In a nutshell, what it shows is that jobless claims peak following the previous recession, and then roll over during expansion.
Once the data hits 300,000, it takes about 20 months before the next recession hits. In the current cycle, we just hit 21 months. Here's analysis from McCullough:
"We’d agree that it’s quite often 'different this time' but it doesn’t mean that it’s going to be different forever and all of the time. Something can happen at a surprising rate then mean revert the other way."
"Take a gander at jobless claims. At any one of these points, 18 months, 19 months, and 20 months, you hit 300,000 then jobless claims jump and eventually recession sets in. So it’s not different this time in that regard."
"Now, if the Fed raises rates, people are going to get fired left, right and center. So again when you really start to get concerned about the Federal Reserve acting on one of these data points you should start to get really excited about buying all the things we’ve had you in for about 17 months." (For more on what to buy, click here and here.)
In other words, the Fed will speed-up the deterioration of already weak economic data by hitting the monetary policy brakes. Caution is advised.
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In this excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough reviews how our analysts’ Q3 macro themes fared, and offers a glimpse of what lies ahead in the current quarter.
Takeaway: This is a brief (complimentary) excerpt from this morning's Early Look note.
Love us or hate us, there is no nuance in the calls we make. It’s either buy, sell, or do nothing. Our Global Macro Themes are simple: Growth accelerating or slowing; Inflation accelerating or slowing. And we focus on policy in between. Hashtag. Rinse and repeat.
If you have talented friends on the Old Wall who have been struggling to sell research, tell them to give us a buzz. We can help them if they are ready to help themselves. What sells is making real calls (long and short) using a repeatable process.
When it comes to making macro calls, other than marketing perma-bull, there’s no process in looking for reasons why SPY should go up. Tell me why it should go up. And, perversely, if you had the #GrowthSlowing theme right, you’d have kept it simple and honest...
Click here to continue reading (subscribe to the Early Look).
These are our macro team's top three quarterly themes. They form the foundation from which we base our investment ideas for the coming quarter. As Hedgeye CEO Keith McCullough writes in this morning's Early Look (our morning newsletter to subscribers):
"Love us or hate us, there is no nuance in the calls we make. It’s either buy, sell, or do nothing. Our Global Macro Themes are simple: Growth accelerating or slowing; Inflation accelerating or slowing. And we focus on policy in between. Hashtag. Rinse and repeat."
Our macro themes are simple. They boil down to a non-consensus theme which we've maintained for a year now...
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