CLIENT TALKING POINTS
CHINA
Hang Seng slammed for a -1.9% loss on the protest news being the Top Trending Story in macro this morning, but somehow the Chinese marked up the Shanghai Comp on the close +0.4% to a new year-to-date high of +15.1%!
USD
Big deflation signal continues as Draghi devalues (we only like US #GrowthAccelerating on USD up, when Rates are up – and they are falling); we don’t think the Japanese, European or American central plans ultimately work where it matters (i.e. in real economic growth terms).
RUSSELL 2000
Russell 2000 slammed for a -2.4% loss last week, making that its 4th consecutive weekly loss and taking its draw-down from its all-time #bubble high -7.4%. Liquidity traps out there are real. Respect them.
TOP LONG IDEAS
EDV
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.
TLT
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.
RH
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%.
Asset Allocation
| CASH | 56% | US EQUITIES | 2% | |
| INTL EQUITIES | 8% | COMMODITIES | 4% | |
| FIXED INCOME | 28% | INTL CURRENCIES | 2% |
THREE FOR THE ROAD
TWEET OF THE DAY
Senate democrats pushing CFTC to investigate LME metal warehousing. LME-Midwest premium is 3x higher than historical avg
dty
QUOTE OF THE DAY
I have been up against tough competition all my life. I wouldn’t know how to get along without it.
-Walt Disney
STAT OF THE DAY
The Russian stock market slammed below its AUG closing lows, -1.1% this morning to -17.8% year-to-date.
