Wish I had the trademark on “Now Hiring”…

May 16, 2016

Wish I had the trademark on “Now Hiring”…

I can’t drive down a street in Denver without seeing many of the above banners in windows or tacked to buildings. All of the familiar faces at my neighborhood Starbucks have moved on as they step up to better paying jobs. What a difference eight years has made, not just for Denver, but also for the rest of the U.S.

While the cost of my Starbucks visit rises to keep pace with a tighter labor market, and Colorado’s rising minimum wage, how does a portfolio manager ignore gold at this point in the cycle? Especially with the Fed paused on interest rate hikes while they worry about the strong dollar’s effect on multinationals and ongoing global growth fits and starts. The precious metals and miners seem like a safe bet right now and the charts tell you that they are no longer being ignored.

While the stronger economy is lifting hourly wages naturally, these states are adding further pressure to the price of your morning coffee and weekend movie ticket…

(Goldman Sachs)

Rising wages are having a positive impact on consumer sentiment…

(The Daily Shot)

…which in turn is having a positive effect on retail sales, causing the Atlanta and New York Feds to raise their Q2 GDP forecasts…

The New York and Atlanta Fed tracking estimates for Q2 GDP received strong boosts by the Retail Sales data (chart below). The Atlanta Fed’s GDPNow forecast for Q2 growth now is 2.8% and the FRBNY’s Nowcast is predicting 1.25% GDP growth in Q2. The strength of the Retail Sales report increases the likelihood that the FOMC raises rates in one of the next two meetings. The market’s realization of this reinforced the Dollar strength and equity weakness. The timing of this development is remarkable since over the past 4 months, positioning has reversed from massively risk-off in February in fear of tightening to very much risk-on today with the assumption that tightening was over for the foreseeable future. In short, the market is not positioned for a potential Fed tightening in June or July.

(JonesTrading)

Unfortunately, the increase in consumer spending is having little positive effect on retailer stock prices (unless your stock is Amazon)…

Some big retailer earnings last week. According to Macy’s CFO, 2016 started off on the wrong foot…

“While the quarter started stronger, the business weakened considerably versus our expectations beginning in mid-March, and that trend continued through April. As Terry [Lundgren, Macy’s, Inc. chairman and chief executive officer] said in our press release, we are seeing weakness in consumer spending levels in apparel and related categories. The number of transactions declined 7 percent in the quarter, which is far worse than what was experienced last year.”

“We’re frankly scratching our heads. We see the same economic data you all see and it would point to a customer that would be spending more. I think that gets to what he and she are spending it on. Savings rates are high, which tells you that either they’re purposefully saving more or that there’s some of that savings that can be used for discretionary spending if they get motivated to do so. Some of it is spending in different categories; health, restaurants, travel. I’m not sure, but I would say that we too are somewhat puzzled by the data that we’re seeing on the consumer and the traffic we’re seeing in the stores and on the site.”

(Bloomberg)

 

Nordstrom’s 1st Quarter was equally weak as Goldman noted…

The 560bp sequential deceleration in full-line comp from 4Q15 to 1Q16 was the worst deceleration since 2008 as steep traffic declines in store and weakness online was broad-based by category and by region. Management noted a rapid shift in the environment due in part to the consumer shift online as both brands and e-commerce competition have accelerated. However, we also believe macro concerns impacting the high end had an outsized impact.

(Goldman Sachs)

For the retailers reporting their calendar Q1’s to date, there is a notable skew to the results…

(Factset)

The decline in foot traffic is incredible…

So where are consumers going? Well, the most obvious answer is Amazon, for one, where clothing sales were up 19 percent in the first quarter of 2016 from the year before — compared to 1 percent and 5 percent drops at Walmart and Target, respectively, according to research from Cowen & Co.

But consumers are also spending their money on cars, home goods, restaurants, travel, and other things that give them a more-exciting experience than schlepping to an out-dated department store.

(Bloomberg)

JPMorgan puts pencil to paper to calculate the shift out of physical stores to the mouse, tablet and smartphone. Note that it is not slowing…

(JPMorgan)

Further troubling to physical Retail execs, the IEA last week commented that the global overhang of unused crude is being run off…

“Any changes to our current 2016 global demand outlook are now more likely to be upwards than downwards, as gasoline demand grows strongly in nearly every key market, more than offsetting weakness in middle distillates”.

(Reuters)


It’s about time. A big deal in the energy space announced over the weekend…

This will be the second largest transaction of the year. Has psychology in the board room turned with higher energy prices? Will a $4b deal cause others to follow with their own transactions?

(@Dealogic)

If you are looking for another measure of risk appetite, check out this chart of Greek bank stocks…

@jsblokland: Another #Greece wow chart! Greek banks are up more than 200% since mid February. #Piraeus Bank up ~350%!

One of the more interesting moves last week was the collapse in the yield curve…

As it accelerated towards its narrowest level in 2016, one could guess that it will add to pressure on banking and financial stocks.

Banks are a large sub sector of value stocks. If the yield curve does not steepen, it will be up to the other cyclical sectors to buoy Value as it looks to overtake a nine-year pounding by growth stocks…

(The Leuthold Group)

Such a sad story in Venezuela as price and forex controls, plus populist giveaways are blowing up one of the most resource-rich countries in the world…

In the last two years Venezuela has experienced the kind of implosion that hardly ever occurs in a middle-income country like it outside of war. Mortality rates are skyrocketing; one public service after another is collapsing; triple-digit inflation has left more than 70 percent of the population in poverty; an unmanageable crime wave keeps people locked indoors at night; shoppers have to stand in line for hours to buy food; babies die in large numbers for lack of simple, inexpensive medicines and equipment in hospitals, as do the elderly and those suffering from chronic illnesses.

(The Atlantic)

 

What a great out-of-the box research topic…

Did cheaper flights change the direction of science?

We test how a reduction in travel cost affects the rate and direction of scientific research. Using a fine-grained, scientist-level dataset within chemistry (1991-2012), we find that after Southwest Airlines enters a new route, scientific collaboration increases by 50%, an effect that is magnified when weighting output by quality. The benefits from the lower fares, however, are not uniform across scientist types: younger scientists and scientists that are more productive than their local peers respond the most. Thus, cheaper flights, by reducing frictions otherwise induced by geography and allowing for additional face-to-face interactions, seem to enable better matches over distance.

(Catalini/Fons-Rosen/Gaulé)


Last week, ride sharing quit Austin. Will the void last until self-driving cars hit next year?


Finally, changing what day of the week you get gas might keep a little more in your wallet…

The chart shows that there is an opportunity for savings by purchasing gasoline on Tuesday or Wednesday instead of Friday or Saturday, up to eight or nine cents per gallon on average. While this may not seem significant, filling up a 15-gallon tank once a week could amount to a difference of more than $60 a year. (It is important to keep in mind that this analysis only includes St. Louis and that cyclical patterns can change over time.)

(St. Louis Fed)

And Lastly…

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