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The Best of Kass

Super Bowl XLVIII parties might include fewer snacks, some skunked brewskis, and some older-model cars in the driveway.

Expect some of your friends to brawl it out over who has the newest and greatest iPhone/Samsung Galaxy-Nebula-Universe/BB10. You can be well-positioned for the sideshow of who is eating the rotting Apple or sour Blackberry next year -- perhaps to the tune of Beyonce lip-synching during the halftime show.

Note: Special thanks to our two analysts, Nick Pollari and Kelley Hopkins, for their assistance in the preparation of this report.

At the time of publication, Kass was long GM, PEP and DIS.


Kass Out
Originally published on Friday, Feb. 1 at 4:54 p.m. EST.
  • But first, a summary of this week's macroeconomic events.

The S&P 500 made a multiyear high this week, rising by 0.7%. I would caution that there were some developing divergences with transports, retail (and consumer discretionary), cyclicals and selected construction-related areas turning lower on the week. There was a lot of mixed data over the last few days.

Here is a summary of macroeconomic events this week:

Positives

  • While January payrolls were a touch light vs. consensus, the prior two months were revised upward by 127,000 and 335,000 for the full year 2012 in the annual benchmark revision. Average hourly earnings rose 2.1% year over year, matching the best since July 2011.
  • January ISM manufacturing rose almost 3 points to 53.1 and above estimates of 50.7. It's the highest since April, led by new orders, production, employment and inventories. Export orders and backlogs fell and prices paid rose.
  • University of Michigan final confidence for January at 73.8, better than expected, up from 72.9 in December but still well below 82.7 in November, as 2013 tax increases cause concern.
  • December durable goods orders jump 4.6% headline but a more modest 0.2% at the core (nondefense capital goods, excluding aircraft).
  • The S&P/Case-Shiller home price index rose 0.6% month over month and 5.5% y/y in November.
  • Wage pressures modest as seen in fourth-quarter Employment Cost Index, up 1.9% y/y.
  • Personal income jumps 2.6% m/m in December but juiced by year-end tax decisions. PCE price deflator rose 1.3% y/y, the lowest since July.
  • Fourth-quarter earnings continue to be good relative to expectations but company's play the Wall St game as first-quarter EPS estimates fall again on guidance.
  • HSBC China manufacturing and PMIs for Taiwan, Japan Brazil and EU all rose.
  • EU CPI moderates to 2% y/y, less than expectations of 2.2%.
  • EU economic confidence in December is best since June.

Negatives

  • Unemployment rate ticks up to 7.9% as household survey shows job add of just 17,000 as labor force rises by 143,000. Participation rate unchanged at 63.6%, just off lowest level since 1981.
  • Initial Jobless Claims bounce back to 368,000, which was 18,000 more than expected, and after seasonally distorted prints of 330,000 and 335,000 in the prior two weeks.
  • Pending home sales in December unexpectedly fall by 4.3% m/m vs. estimates of no change.
  • Conference Board consumer confidence falls to 58.6 from 66.7, lowest since Nov 2011.
  • U.S. fourth-quarter GDP contracts by 0.1% vs. estimate of 1.1% gain but due to big cut in defense spending and drag from inventories. Personal spending and investment both positively higher.
  • Gasoline prices, according to AAA, rose $0.14 on the week to $3.46 per gallon, the highest since Nov 7.
  • Implied inflation rate in the five-year TIPS rose a sharp 19 basis points on the week to 2.55%, the most since April 2011. CRB Index at highest since October.
  • Bankrate.com said average 30-year mortgage rate rises to 3.6%, the highest since August. Ten-year Treasury yield at highest since April. With FNMA 30-year coupon at highest since August, mortgage rates will continue higher by another 10 to 20 bps in coming weeks; all else equal.
  • MBA said refinancings fell 10.2% and are back below one-year average. Purchases down a more muted 1.8%.
  • German retail sales fall 1.7% in December m/m, more than the estimated decline of 0.1%.
  • For European exporters, euro rose to highest level since August as it bears brunt of currency wars due to shrinking of ECB balance sheet as nerves calm. Spanish IBEX down 5.7% on week. Spain's fourth-quarter GDP contracts for sixth straight quarter and retail sales fell 10.7% in December.
  • Italian consumer confidence falls to lowest on record since 1996.
  • Manufacturing PMIs fall in South Korea (likely due to falling yen), India, Indonesia and the U.K.
  • Japanese household spending and unemployment rates miss estimates.
  • From a contrarian standpoint, Bulls rose to 54.3 from 53.2 while Bears remained unchanged at 22.3. The spread is the highest since the first week of June 2011.

Thanks so much for reading my Diary and enjoy your weekend and the Super Bowl!

At the time of publication, Kass had a short position in the SPDR S&P 500 ETF

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.
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PEP $97.65 0.21%
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