THE FRIDAY REDO

For the intermediate term TREND (3 months), we are bullish on the jobs picture, but we need to get past Friday first.  The upcoming revision to the official number of those unemployed and non-farm payroll data create a political football that the Obama administration does not need right now.

 

The economic downturn has been the deepest of the post-World War II era.  Generally speaking, the post-war environment has been one of growth, with most government reporting structured on an underlying assumption of ongoing economic growth, not the “Great Recession.” 

 

The stress of the extreme economic downturn is creating problems with the government reporting system. Those problems include:

 

(1)    The lack of reporting data due to companies going out of business.

(2)    An economic decline so severe it’s affecting normal seasonal variation patterns. 

(3)    One-in-three home sales is a foreclosure sale.

(4)    The federal government taking effective control of auto makers, banks and insurance companies.

 

The likelihood that traditional economic models will produce an accurate picture of current economic activity has deteriorated.

 

This will become more evident this Friday.  In more “normal” times, payrolls not reported by companies because they have gone out of business are more than offset by jobs created by start-up companies.  The excess jobs creation from start-ups is an estimate from five years of historical data, which includes “normal” periods of economic growth.   The economic climate of 2008 and 2009 has changed the payroll reporting dynamic.  As a result, the BLS will publish next week a downward revision to May 2009’s previously reported payroll level of about 800,000 or more.   That means the official number of unemployed since the start of the recession will be bumped up from the current 7.6 million to 8.4 million people.

 

If the traditional BLS (government) quote is understating the severity of the Job picture, what is the chance that the government is overstating the strength in the economy?  I would say strong.  I said last week that most people believe that the initial estimate of GDP is the most heavily rigged and politicized data point put out by the government.  With the GDP figure coming on the heels of the State of the Union speech it was certainly a welcome headline, but negative for the market. 

 

The better than expected GDP number was dollar bullish which is a negative for the REFLATION trade; the S&P 500 closed down 0.98% on the day.  We are agnostic to this Friday’s jobs data.  An improving unemployment picture puts upward pressure on interest rates and is dollar bullish, bearish for the market.  A bad jobs number is a political nightmare for the Obama administration, which is also dollar bullish and a nightmare for the market.      

 

Howard Penney

Managing Director

 

THE FRIDAY REDO - bps

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more