Client Talking Points
EUR/USD taking at peek at $1.28 this morning as Draghi opts for the Policy To Inflate (rather than real growth). We’ve seen this movie before – it’s a move into Quad 3 for Europe in our GIP model (stagflation).
UST 10YR Yield has ramped to lower-highs of 2.50% within a bearish immediate-term risk range of 2.31-2.51%. Volatility in the bond market is starting to come off its all time lows; front month VIX is bullish TREND now too (11.34 support).
Gold doesn’t like the Dollar Up, Rates Up thing – rarely does; looks interesting on the long side if it can hold $1251 and the UST 10YR backs off at our 2.51% resistance line. Hedge funds have cut speculation long (futures) bets in Gold on this correction by 28%.
|FIXED INCOME||30%||INTL CURRENCIES||4%|
Top Long Ideas
The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). Now that we have our first set of late-cycle economic indicators slowing in rate of change terms (ADP numbers and the NFP number), it's time to really think through the upcoming moves of this bond market. We are doubling down on our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.
Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position. Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.
Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.
Three for the Road
TWEET OF THE DAY
Olive Garden hopes all-you-can-eat pasta leads to skyrocketing sales http://fortune.com/2014/09/08/olive-garden-never-ending-pasta-pass/ "never-ending-boardroom-drama"
QUOTE OF THE DAY
If your ship doesn’t come in, swim out to meet it.
STAT OF THE DAY
Based on total cost, which includes tuition, room, board, and fees for boarding-only students in grades 9 through 12 for the 2014-2015 school year, Brandon Hall School in Atlanta, Georgia came in at the most expensive boarding school in America with a total cost of $62,300.