361 Capital Weekly Research Briefing

361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.

361 Capital Weekly Research Briefing
January 20, 2014

Timely perspectives from the 361 Capital research & portfolio management team

Written by Blaine Rollins, CFA

You know that the Bulls are in control when the Bears are going in for MRIs…

(BigStoryAP)

Several large equity indexes again set new 52 week and/or all-time highs this week…

While the economic data and news slighted positive for the week, it is really earnings which are driving the individual stock movements and thus the sectors.

(TheFatPitch)

The first week of earnings was a mixed one with items for both bulls and bears…

Here are the charts of the stocks that reacted positively toward their earnings announcements. (Lots of financials only because it is a big reporting week for the banks/brokers.)

There were also an equal number of companies that didn’t live up to expectations and the stocks were clipped…

…like SLM, CSX, AA, COF, FAST, C, PBCT, INTC, BK, MTB, UNH, HBAN and GE. I am paying close attention to how these stocks act in the weeks after their earnings. If the stocks get bid back to their pre-disappointing earnings level, then it will be another sign of strength in the market. Alcoa and Fastenal disappointed earlier in the season and we can see that they were both quickly bought up (especially AA!). So put the biggies like CSX, C, INTC and GE on your screen to watch their direction this week.

For the week, Earnings dominated and some of that showed up in the underperformance of the cyclical stocks…

More broadly, risk buying remains evident via the outperformance of Biotech, Small Caps, Europe and Maker’s Mark…

Here is a look at where the big money was hunting in the last 6 days…

Plenty of interest remains in the Health Care sector and those companies putting up big quarterly earnings…

(Click here for the full market cap list)

Contrarians take note; the research houses dislike Fixed Income, Asian Equities & Emerging Markets in 2014…

(MebFaber/BlackRock)

One area they do like is UK equities and their economy is now helping that call…

@ReutersJamie: Staggering UK retail sales figures, +5.3% in December, the fastest annual rise in 9 years

Here in the U.S., the monthly JOLTs data finally saw a return to 4 million job openings…

Jobs openings increased in November to 4.001 million from 3.931 million in October. The number of job openings (yellow) is up 5.6% year-over-year compared to November 2012 and this is the first time job openings have been above 4 million since 2008. Quits increased (updated) in November and are up about 13% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for “quits”).

(CalculatedRiskBlog)

And for another sign of sound Financial strength in the U.S…

The Bloomberg index of financial conditions is at an all-time high, which suggests that financial markets haven’t been this healthy for the past two decades. This index is composed entirely of real-time measures of market sentiment, risk aversion, liquidity, credit risk, and profit expectations. No seasonal adjustment factors were used in the manufacture of this index, and no revisions will ever be made to the data. This index has a good record of leading economic conditions in general, and currently it is saying that there is virtually no risk of any significant economic disruption on the horizon.

(CalafiaBeachPundit)

If you are a Bear (not in an MRI) looking for fresh meat, Brick and Mortar retail is the newest buffet after the Best Buy disaster last week…

The Census Bureau reports that the four specialty retail categories representing total sales of just over $600 billion grew by only $5 billion between 2007 and 2011 (the last date that this level of detail was reported). That’s less than one percent over four years. The e-commerce players increased their cumulative sales in these categories by $35 billion over the time period. This means that the cumulative sales of brick-and-mortar retailers shrank by $30 billion in just four years!…

(JeffJordan)

The shift in the 2013 holiday shopping season not only caught UPS by surprise…

Retailers got only about half the holiday traffic in 2013 as they did just three years earlier, according to ShopperTrak, which uses a network of 60,000 shopper-counting devices to track visits at malls and large retailers across the country. The data firm tracked declines of 28.2% in 2011, 16.3% in 2012 and 14.6% in 2013. Online sales increased by more than double the rate of brick-and-mortar sales this holiday season. Shoppers don’t seem to be using physical stores to browse as much, either. Instead, they seem to be figuring out what they want online then making targeted trips to pick it up from retailers that offer the best price. While shoppers visited an average five stores per mall trip in 2007, today they only visit three, ShopperTrak’s data shows.

(WSJ)

And brick and mortar retail will not get any help from the weather this week. You can just hear Bezos laughing…

The polar vortex will get stronger and move farther south later in January, causing cold to intensify in the Midwest and East and drought to build in California and the West. As the pattern responsible for rounds of nuisance snow and waves of cold air continues into next week, indications are that bitterly cold air will return later in the month courtesy of the polar vortex. There is the chance the cold may rival that of early January in some areas.

(AccuWeather)

The same weather pattern is leaving California dry as a bone. Get ready for several threads of inflation this summer unless it rains soon…

Cattle ranchers have had to sell portions of their herd for lack of water. Sacramento and other municipalities have imposed severe water restrictions. Wildfires broke out this week in forests that are usually too wet to ignite. Ski resorts that normally open in December are still closed; at one here in the Sierra Nevada that is open, a bear wandered onto a slope full of skiers last week, apparently not hibernating because of the balmy weather. On Friday, Gov. Jerry Brown made it official: California is suffering from a drought, perhaps one for the record books. The water shortage has Californians trying to deal with problems that usually arise in midsummer.

(NYTimes)

Goldman Sachs’ average comp per employee was -4% year over year. Salt Lake City is a BIG reason why…

New hires in Salt Lake City cost 30 percent less, on average, than employees in the same roles in New York, according to a consultant who has helped grow Goldman’s Utah operation but was not authorized to talk to the press. A Goldman employee fresh out of college in Salt Lake City, for example, might earn about $45,754 a year, on average, while those in New York earn about $67,334, according to jobs website Glassdoor.com. The cost of living in Salt Lake is also lower: The median home value there is $256,800, while the median home value in New York is $502,600, according to a home value index from the real estate website Zillow.com. The site’s rent index shows Salt Lake City at $1,337 per month, compared with $2,128 per month in New York…

Goldman plans to add at least another 200 Salt Lake City employees in the near term, and is rethinking which jobs can move to places like Utah. “Salt Lake City is becoming huge,” said one person familiar with the bank’s thinking. Other lower-cost offices are growing too, but the rate of growth could not be learned. It is also working as an effective bogeyman to scare bankers that are early in their careers, an insider said. Late at night, when junior bankers in New York complain about the long and grueling hours, they are jokingly reminded that their job can be moved to Salt Lake City, where people will happily pick up the slack. And suddenly, the whining stops, the insider said.

(Reuters)

Note to Canada: Too much Household Debt and falling Real Estate prices can be bad. Really, really bad…

7.5% of the Canadian workforce is in the construction industry, while 7% of the Canadian economy is based on residential construction — both record highs;

The latest Canadian jobs report was dismal, as its economy shed 45,000 jobs in December, and the unemployment rate rose from 6.9% to 7.2%; and…

(TIME.com)

Deal of the Week… Google buying Nest. (FD: I am a very happy Nest customer.)

CES may be finished for another year, but one of the biggest themes of the show — that anything (cars, watches, mirrors, tables, whatever) can be ‘hardware’ — is just taking off. And today’s news of Google buying Nest for $3.2 billion underscores how Google wants to be the player at the front and center of hardware. Google’s Nest buy may not be giving the search giant access to all the data that zooms across Nest’s apps, thermostats and smoke detectors (for now at least), but it will give Google something else: top-shelf design expertise for that next frontier of hardware, by way of a team of people brought together by two senior hardware veterans from Apple, one of whom is known as the father of the iPod. This is a significant turn of events for Google.

(TechCrunch)

But, I was told that Chicago hockey parents are the best…

(@TheRealChuck84)

Tweet of the Week…

‏@Will___Ferrell: I’ll tell you what a woman wants. She wants you to drag her to the bedroom, toss her down,and do the dishes and laundry while she takes a nap.

Finally, here is proof that the world of surfing photography just became disrupted by a Drone with a GoPro camera…

(TheNextWeb)

Ending with a ‘Guess the Chart’…

In the event that you missed a past Research Briefing, here is the archive…

361 Capital Research Briefing Archive

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Blaine Rollins, CFA, is managing director, senior portfolio manager and a member of the Investment Committee at 361 Capital. He is responsible for manager due-diligence, investment research, portfolio construction, hedging and trading strategies. Previously Mr. Rollins served as Executive Vice President at Janus Capital Corporation and portfolio manager of the Janus Fund, Janus Balanced Fund, Janus Equity Income Fund, Janus Aspen Growth Portfolio, Janus Advisor Large Cap Growth Fund, and the Janus Triton Fund. A frequent industry speaker, Mr. Rollins earned a Bachelor’s degree in Finance from the University of Colorado, and he is a Chartered Financial Analyst.