CLIENT TALKING POINTS
VOLUME
Our non-Demark count had Total U.S. Equity Market Volume up a whopping +2% vs. its 1 month average yesterday; if they don’t bounce them, we crash – so that’s the good news; bad news is most are still levered to the #bubble in U.S. equity beta.
RUSSELL 2000
And the +3.5% bounce in the Russell 2000 (after 6 straight down weeks and a -13% draw-down since the all-time #Bubble peak); don’t forget you have to “bounce” +15% just to break-even! We have shorting the open and scaling that hedge up to 1105 as the playbook, especially if you covered some at the low end of the current 1041-1105 risk range.
EUROPE
And the bounce in Europe… within the crash for Greece and Portugal (both still down -21-22% year-to-date), but a bounce on more money printing hopes nevertheless. Oil bouncing (after crashing 25% since June) too. #Fun, but fade it.
TOP LONG IDEAS
EDV
The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.
TLT
We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).
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 | 67% | US EQUITIES | 3% | |
| INTL EQUITIES | 0% | COMMODITIES | 3% | |
| FIXED INCOME | 24% | INTL CURRENCIES | 3% |
THREE FOR THE ROAD
TWEET OF THE DAY
GOLD: still the only commodity we care on (long side); risk range = $1
@KeithMcCullough
QUOTE OF THE DAY
Without ambition one starts nothing. Without work one finished nothing. The prize will not be sent to you. You have to win it.
-Ralph Waldo Emerson
STAT OF THE DAY
The Executive Director of the IEA reported this week that 98% of crude oil and condensates from the U.S. have a breakeven oil price below $80/barrel. She followed up with the estimation that 82% of these companies have a breakeven at $60 or less.
