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Client Talking Points

USD

If you didn’t know macro markets are highly correlated to USD correlation risk, now you know. USD correlations to big stuff like Gold and Oil are running -0.8-0.9 on 60-90 day correlations right now; yesterday’s up move in Gold is just the upside down of what’s been an epic EUR/USD meltdown.

UST 10YR

UST 10YR Yield dropping to 2.41% after some hoped that Friday’s jobs report was going to mean they got paid on the short side of bonds – not so much as the UST 10YR Yield moves back toward crash mode (-20% year-to-date); the Long Bond remains our best Macro Long Idea for 2014.

RUSSELL 2000

The Russell 2000 was down another -0.8% yesterday taking its draw-down to -9.4% from its all-time #bubble high established on July 7th, 2014; next support is 1079, but that’s just an immediate-term level – intermediate-term there’s no support down to 1015 ish.

Asset Allocation

CASH 60% US EQUITIES 2%
INTL EQUITIES 8% COMMODITIES 4%
FIXED INCOME 24% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
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%.  

Three for the Road

TWEET OF THE DAY

Our Ace, Todd Jordan @HedgeyeSnakeye  has been making the bear call on Macau since June - reiterating SELL $LVS today

@KeithMcCullough

QUOTE OF THE DAY

The four most dangerous words in investing are: “this time it’s different.”

-Sir John Templeton

 

STAT OF THE DAY

Merger and acquisition activity has jumped this year, the total M&A volume is now $1.29 trillion in 2014 on pace for a record, according to data provider Dealogic.