Client Talking Points
Immediate-term TRADE oversold signals happen, a lot, and they usually happen in the SPX and RUT when we get an immediate-term TRADE overbought signal in the VIX (check, check). Support for the SPX is 1982 and resistance for the VIX is 13.83.
Consistent within the pattern of behavior we’ve seen since July 7th, U.S. stock market DOWN days have more volume than the UP days. Yesterday’s Total U.S. Equity Market Volume (including dark pool) was +9% and +3% vs its 1 and 3 month averages #asymmetry.
The UST 10YR at 2.51% frustrated some yesterday, but understand the new narrative that the Fed is going to “change its forward guidance” – some read that as hawkish, while we read that as dovish, moving to “data dependent” vs “calendar expectations” means the Fed can and will get more dovish as the U.S. economic data slows. We see no support for the UST 10YR to 2.31.
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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
China increased Nickel Ore imports from the Philippines 3-fold on Indonesia export ban (now 61% of total unprocessed Ore). #meaningful
QUOTE OF THE DAY
If you are not willing to risk the usual you will have to settle for the ordinary.
STAT OF THE DAY
6.9 millimeters, the width of the iPhone 6 that Apple unveiled yesterday.