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INITIAL JOBLESS CLAIMS DOWN A HAIR

Initial Claims

Initial claims fell 3k last week to 450k (falling 1k net of the revision). Rolling claims came in at 465k, a decline of 13.5k over the previous week. Reported claims are now at the low end of the YTD range of 450-470k that the series has occupied for all of 2010. While the series is improving in the last few weeks, the reality is that claims still need to be 50-75k lower than they are now before unemployment will start to improve.

 

INITIAL JOBLESS CLAIMS DOWN A HAIR - 1

 

INITIAL JOBLESS CLAIMS DOWN A HAIR - 2

 

In the table below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.

 

INITIAL JOBLESS CLAIMS DOWN A HAIR - 3

 

September will be the final month for meaningful census drag on employment in the economy.

 

INITIAL JOBLESS CLAIMS DOWN A HAIR - census chart

 

Joshua Steiner, CFA

 

Allison Kaptur


TWO POSITIVES FOR FINANCIALS - INITIAL JOBLESS CLAIMS DOWN A HAIR; YIELD CURVE WIDENS WEEK OVER WEEK

Initial Claims

Initial claims fell 3k last week to 450k (falling 1k net of the revision). Rolling claims came in at 465k, a decline of 13.5k over the previous week. Reported claims are now at the low end of the YTD range of 450-470k that the series has occupied for all of 2010. While the series is improving in the last few weeks, the reality is that claims still need to be 50-75k lower than they are now before unemployment will start to improve.

 

TWO POSITIVES FOR FINANCIALS - INITIAL JOBLESS CLAIMS DOWN A HAIR; YIELD CURVE WIDENS WEEK OVER WEEK - rolling

 

TWO POSITIVES FOR FINANCIALS - INITIAL JOBLESS CLAIMS DOWN A HAIR; YIELD CURVE WIDENS WEEK OVER WEEK - raw

 

 

Yield Curve

The following chart shows the yield curve (2-10 spread) by quarter with the chart below that showing the sequential change. The 2-10 spread (a good proxy for industry NIM) has been compressing for the past two quarters. Yesterday’s closing value of 224 bps is up from 214 bps last week.

 

TWO POSITIVES FOR FINANCIALS - INITIAL JOBLESS CLAIMS DOWN A HAIR; YIELD CURVE WIDENS WEEK OVER WEEK - spread

 

TWO POSITIVES FOR FINANCIALS - INITIAL JOBLESS CLAIMS DOWN A HAIR; YIELD CURVE WIDENS WEEK OVER WEEK - spread change

 

The table below shows the stock performance of each Financial subsector over four durations. 

 

TWO POSITIVES FOR FINANCIALS - INITIAL JOBLESS CLAIMS DOWN A HAIR; YIELD CURVE WIDENS WEEK OVER WEEK - price perf

 

September will be the final month for meaningful census drag on employment in the economy. 

 

TWO POSITIVES FOR FINANCIALS - INITIAL JOBLESS CLAIMS DOWN A HAIR; YIELD CURVE WIDENS WEEK OVER WEEK - census chart

 

Joshua Steiner, CFA

 

Allison Kaptur


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - September 16, 2010

As we look at today’s set up for the S&P 500, the range is 24 points or -1.61% downside to 1107 and 0.53% upside to 1131.  Equity futures are trading below fair after markets this morning. Yesterday, U.S. equities succeeded in reversing earlier declines yesterday to close up on the day as investors shrugged off a disappointing NY Empire State manufacturing reading.

Today's macro releases include Initial Jobless Claims and September Philadelphia Fed Index.

  • AAR (AIR) reported 1Q EPS 35c vs estimated 30c
  • Abbott Labs (ABT) got a split decision from a U.S. panel on whether to recommend its diet pill Meridia to stay on market.
  • Amerigroup (AGP) boosted its stock repurchase program by $200m
  • Clarcor (CLC) boosted the low end of its 2010 EPS forecast
  • Dress Barn (DBRN) sees 2011 adjusted EPS $2.05-$2.15 vs estimate $2.09
  • Fifth Third (FITB) said it will acquire National Processing Co.
  • GameStop (GME) said it will buy back $500m in stock, debt
  • NPS Pharmaceuticals (NPSP) plans to sell $41.2m shares

PERFORMANCE

  • One day performance: Dow +0.44%, S&P +0.35%, Nasdaq +0.50%, Russell +0.50%
  • Month-to-date: Dow +5.56%, S&P +7.2%, Nasdaq +8.84%, Russell +8.35%
  • Quarter-to-date: Dow +8.16%, S&P +9.13%, Nasdaq +9.09%, Russell +7.03%
  • Year-to-date: Dow +1.38%, S&P +0.87%, Nasdaq +1.4%, Russell +4.31%

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: +174 (+400)
  • VOLUME: NYSE - 901.21 (-2.44%)  
  • SECTOR PERFORMANCE: Mixed performance - 5 sectors rose and 3 declined - the RECOVERY trade under-performed again yesterday.
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Pall +6.26%, Novell +5.92% and Mckession +5.39%/AK Steel -5.78%, Time Warner -4.97% and Micron -4.54%
  • VIX: 21.56 +2.50% - YTD PERFORMANCE: (+1.94%)           
  • SPX PUT/CALL RATIO: 1.53 from 1.58 -3.33%  

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 14.80 0.203 (1.391%)
  •  3-MONTH T-BILL YIELD: 0.15% unchanged
  • YIELD CURVE: 2.24 from 2.18

COMMODITY/GROWTH EXPECTATION:

  • CRB: 279.05 -0.93%
  • Oil: 76.02 -1.01% 
  • COPPER: 346.65 -0.06%
  • GOLD: 1,267 -0.20%

CURRENCIES:

  • EURO: 1.3001 -0.07%
  • DOLLAR: 81.491 +0.51%

OVERSEAS MARKETS:

Europe

  • Markets: FTSE 100: (0.12%); DAX +0.07%; CAC 40 (0.12%)
  • Major bourses remain locked into a narrow trading range with investors largely sidelined while economic indicators continue to paint an inconclusive picture on the state of the global economy.
  • Gains in Oil & Gas and Industrial Goods sectors have been offset by declines in Basic Materials, Autos Travel and Telecoms.
  • Volumes remain below seasonal average
  • Greek officials have ruled out the possibility of default, according to the FT
  • Spain sells €1.28B 30-yr Bond at average yield of 5.077% vs previous 5.908% with a bid-to-cover ratio of 2.1 vs previous auction 2.44 last and €2.72B 10-yr Bond at average yield 4.144% vs previous 4.86% with a bid-to-cover ratio 2.3 vs previous 1.88
  • UK Aug Retail Sales (0.5%) m/m vs cons +0.3%

Asia

  • Markets: Nikkei (0.07%); Shanghai Composite (1.89%)
  • Regional markets closed mostly lower in the wake of yesterday’s market intervention to weaken the yen. Japan rose in the morning, but gave up the gains on afternoon declines in commodity stocks. China fell again amid concerns tighter bank capital requirements may subdue credit growth.
  • Australia dropped as miners declined on stalled metal prices
  • Japan July tertiary industry activity index +1.6% m/m to 98.9. 
Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER


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THE M3: MELCO COTAI LAND PREMIUM; HOUSE OF DANCING WATER; 10K WORKERS NEEDED; IMPORTED WORKERS

The Macau Metro Monitor, September 16th 2010

 

MELCO TO PAY AN EXTRA 257M PATACAS IN PREMIUM SCMP

MPEL will need to pay an extra 257 million patacas in land premium after the Macau government revised the land grant for CoD.  The fee is on top of the 842 million patacas premium payable under Melco Crown's 2008 land grant.  It was revised to allow a bigger, yet-to-be-developed apartment-hotel tower of 140,000 square metres, up from 106,000 sq.metres.

 

MACAU'S HOUSE OF DANCING WATER WILL BE PROFITABLE "IN A FEW YEARS TIME": LAWRENCE HO macaubusiness.com, SCMP

CEO Lawrence Ho says HDW will be profitable in a "few years time".  Ho added that the HDW event is helping the company gain brand recognition.  HDW is set to open to the public tomorrow, after a special VIP preview scheduled for today.

 

MACAU'S TOURISM SECTOR WILL NEED 10,000 NEW WORKERS NEXT YEAR: GOVERNMENT macaubusiness.com

The director of the Macau Government Tourist Office, João Manuel Costa Antunes, says the local tourism industry will need 10,000 new workers in 2011 if all the projects in the pipeline open as scheduled.

 

IMPORTED WORKERS ON THE RISE macaubusiness.com

The number of imported workers has increased for the second month in a row, after almost two years of decline.  In July, the total number of non-resident workers in Macau stood at 72,209, slightly up by 67 people in comparison with the previous month.


EARLY LOOK: The Safety of Academia

HAA: Cash 52%, Int'l FX 21%, Bonds 12%, Commodities 6%, Int'l Equities 6%, US Equities 3%

 

 

 

"Those who give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety."
-Ben Franklin

 


Yesterday afternoon the Hedgeye foot soldiers of the independent research gridiron rolled out of 111 Whitney to Luce Hall Auditorium for a 4PM roundtable discussion on “US Financial Reform: The Dodd-Frank Act – Will It Work?” The Moderator was Ernesto Zedillo (34th President of Mexico) and the participants were Robert Shiller (Yale), Thomas Cooley (Stern School of Business), and Stephen Roach (Morgan Stanley).

 

 

EARLY LOOK: The Safety of Academia - chart1

 

 
Until Roach started laying into some of academia’s Perceived Wisdoms about modern day risk management, it was a moderately boring event. It took Zedillo 13 minutes to introduce the financial crisis and pump Cooley’s recent books, then he handed it off to Shiller and Cooley whose main contributions to the debate were to A) support Dodd-Frankenstein and B) mock anyone who has worked at the Whitehouse who doesn’t have a Ph.D. in economics.
 
Now I’m a big fan of both mocking some of the financial academics in the West Wing and of Robert Shiller’s mean reversion work. He was my professor here at Yale in the mid-90s and I’m not going to ride his love-boat this morning, but he is one of the most important Risk Managers of modern day bubble making in the Fiat Republic.
 
Shiller made me smile when he acknowledged that Barney Frank was a poli-sci Ph.D. dropout and has certain barriers of competence on financial risk management matters. Pleasantries aside, Shiller’s idea that America’s economic resolve is going to be found within the Safety of Academia made me nauseous.
 
I certainly don’t always agree with Steve Roach, but his basic conclusion on Dodd-Frankenstein was that “it’s a framework” that will render itself an “insufficient solution” to this economic mess. While Tom Cooley was mocking the likes of Treasury Secretaries who don’t come from the Safety of Academia, Roach (who has his Pd.D. from NYU) was quick to remind him that the biggest joke of all is watching their academic colleagues at a G-20 summit talk about real-time markets. Zedillo didn’t like that.
 
While Shiller and Cooley were focused on whether or not Dodd-Frankenstein Reform would have prevented Lehman Brothers from imposing systemic risk on the US financial system, Roach was more concerned with its ability to prevent the next financial crisis. I agree with Roach’s main conclusion on the root cause of the US financial system becoming as compromised as it has  - US monetary policy. Zedillo didn’t like that either.
 
Shiller didn’t disagree with Roach on the Fed’s impact. Thank God. But the former Mexican Secretary of Education (Zedillo), didn’t like Roach going after another highly regarded academic (Ben Bernanke). This is the debate that needs to be had in this country. Is the root cause of all our leverage and liquidity problems simply the implementation of an academic ideology that monetary policy should only be used as a blunt instrument on the way down and not on the way up?
 
Roach knocked the pins down pretty convincingly on what the Federal Reserve’s objectives should be:
 
1.      Full employment  (1946 Employment Act)

2.      Price Stability (1976 Humphrey-Hawkins Act)

3.      Financial Stability (2010 Dodd-Frankenstein, God help us Act)

 
On Full Employment (economic growth) and Price Stability (inflation), it’s very hard to argue that the last decade of America operating under the Greenspan/Bernanke academic ideologies has worked (net American private sector job adds in the last decade has been ZERO).
 
This shouldn’t be a surprise, neither Greenspan nor Bernanke saw any success applying their academic theories as practitioners of real-time risk management. Volcker’s decade (1980’s, where net private sector job adds was +18 MILLION) was much more successful on both the Full Employment and Inflation scores.
 
On Financial Stability, I don’t think Dodd-Frankenstein supporters have any legitimate claim at this point that it can supersede or contain the long term TAIL risks that the current monetary policy of our Fiat Republic imposes. As both Harvard’s Ken Roggoff and Yale’s John Geanakoplos have both recently concluded, understanding financial crises starts and ends with the cycle of leverage.
 
The US Federal Reserve and the Bank of Japan (and now the European Central Bank) have all attempted to manipulate the cost of and access to that leverage. Since Paul Krugman used his economics Ph.D. to advise the BOJ to “PRINT LOTS OF MONEY” in 1997, the Safety of Academia hasn’t shown this modern day Risk Manager with a BA in Economics something that’s actually worked.
 
I continued to intervene in the Hedgeye Portfolio yesterday, reducing risk by making more sales on this market’s immediate term TRADE strength. In the last 48 hours I’ve gone from a mix of 14 LONGS/7 SHORTS to 13 LONGS/10 SHORTS. That’s the only way to protect my family and firm from the failed policy makers of this world who keep coming up with new policies to creatively destruct our economic liberty.
 
My immediate term support and resistance levels for the SP500 are now 1107 and 1131, respectively.
 
Best of luck out there today,
KM
 
Keith R. McCullough
Chief Executive Officer
HEDGEYE RISK MANAGEMENT


The Safety of Academia

"Those who give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety."
-Ben Franklin

 

Yesterday afternoon the Hedgeye foot soldiers of the independent research gridiron rolled out of 111 Whitney to Luce Hall Auditorium for a 4PM roundtable discussion on “US Financial Reform: The Dodd-Frank Act – Will It Work?” The Moderator was Ernesto Zedillo (34th President of Mexico) and the participants were Robert Shiller (Yale), Thomas Cooley (Stern School of Business), and Stephen Roach (Morgan Stanley).

 

Until Roach started laying into some of academia’s Perceived Wisdoms about modern day risk management, it was a moderately boring event. It took Zedillo 13 minutes to introduce the financial crisis and pump Cooley’s recent books, then he handed it off to Shiller and Cooley whose main contributions to the debate were to A) support Dodd-Frankenstein and B) mock anyone who has worked at the Whitehouse who doesn’t have a Ph.D. in economics.

 

Now I’m a big fan of both mocking some of the financial academics in the West Wing and of Robert Shiller’s mean reversion work. He was my professor here at Yale in the mid-90s and I’m not going to ride his love-boat this morning, but he is one of the most important Risk Managers of modern day bubble making in the Fiat Republic.

 

Shiller made me smile when he acknowledged that Barney Frank was a poli-sci Ph.D. dropout and has certain barriers of competence on financial risk management matters. Pleasantries aside, Shiller’s idea that America’s economic resolve is going to be found within the Safety of Academia made me nauseous.

 

I certainly don’t always agree with Steve Roach, but his basic conclusion on Dodd-Frankenstein was that “it’s a framework” that will render itself an “insufficient solution” to this economic mess. While Tom Cooley was mocking the likes of Treasury Secretaries who don’t come from the Safety of Academia, Roach (who has his Pd.D. from NYU) was quick to remind him that the biggest joke of all is watching their academic colleagues at a G-20 summit talk about real-time markets. Zedillo didn’t like that.

 

While Shiller and Cooley were focused on whether or not Dodd-Frankenstein Reform would have prevented Lehman Brothers from imposing systemic risk on the US financial system, Roach was more concerned with its ability to prevent the next financial crisis. I agree with Roach’s main conclusion on the root cause of the US financial system becoming as compromised as it has  - US monetary policy. Zedillo didn’t like that either.

 

Shiller didn’t disagree with Roach on the Fed’s impact. Thank God. But the former Mexican Secretary of Education (Zedillo), didn’t like Roach going after another highly regarded academic (Ben Bernanke). This is the debate that needs to be had in this country. Is the root cause of all our leverage and liquidity problems simply the implementation of an academic ideology that monetary policy should only be used as a blunt instrument on the way down and not on the way up?

 

Roach knocked the pins down pretty convincingly on what the Federal Reserve’s objectives should be:

  1. Full employment  (1946 Employment Act)
  2. Price Stability (1976 Humphrey-Hawkins Act)
  3. Financial Stability (2010 Dodd-Frankenstein, God help us Act)

On Full Employment (economic growth) and Price Stability (inflation), it’s very hard to argue that the last decade of America operating under the Greenspan/Bernanke academic ideologies has worked (net American private sector job adds in the last decade has been ZERO).

 

This shouldn’t be a surprise, neither Greenspan nor Bernanke saw any success applying their academic theories as practitioners of real-time risk management. Volcker’s decade (1980’s, where net private sector job adds was +18 MILLION) was much more successful on both the Full Employment and Inflation scores.

 

On Financial Stability, I don’t think Dodd-Frankenstein supporters have any legitimate claim at this point that it can supersede or contain the long term TAIL risks that the current monetary policy of our Fiat Republic imposes. As both Harvard’s Ken Roggoff and Yale’s John Geanakoplos have both recently concluded, understanding financial crises starts and ends with the cycle of leverage.

 

The US Federal Reserve and the Bank of Japan (and now the European Central Bank) have all attempted to manipulate the cost of and access to that leverage. Since Paul Krugman used his economics Ph.D. to advise the BOJ to “PRINT LOTS OF MONEY” in 1997, the Safety of Academia hasn’t shown this modern day Risk Manager with a BA in Economics something that’s actually worked.

 

I continued to intervene in the Hedgeye Portfolio yesterday, reducing risk by making more sales on this market’s immediate term TRADE strength. In the last 48 hours I’ve gone from a mix of 14 LONGS/7 SHORTS to 13 LONGS/10 SHORTS. That’s the only way to protect my family and firm from the failed policy makers of this world who keep coming up with new policies to creatively destruct our economic liberty.

 

My immediate term support and resistance levels for the SP500 are now 1107 and 1131, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Safety of Academia - shiller


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