Client Talking Points
After a 15% draw-down, the Russell 2000 bounces +4.2% and consensus (that didn’t call for the decline) calls it a bottom. Roger that. Fade it up to our 1st line of immediate-term TRADE resistance at 1106; there’s 6% of immediate-term downside from there to 1040.
Between Ebola and IBM many are forgetting why the UST 10YR flushed to begin with last week (the cycle - Retail Sales slowed); 2.17% for the UST 10YR this morning couldn’t care less about the U.S./Europe equity bounce to lower-highs. Catalyst = early cycle slowdown.
And oil bounced too, but our immediate-term risk range as $79.97 WTI crude indicated as probable on the downside next. We still think we’re in #Quad4 deflation – at $83.42 this morning, don’t forget Oil is still in crash mode (down more than 22% since June).
|FIXED INCOME||25%||INTL CURRENCIES||4%|
Top Long Ideas
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.
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).
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
Chipotle co-CEO rips into fast-food chains for "short-sighted" mistakes $MCD $WEN $YUM $JACK http://fortune.com/2014/10/20/chipotle-co-ceo-rips-into-fast-food-rivals-slams-their-short-sighted-strategies/
QUOTE OF THE DAY
The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression.
STAT OF THE DAY
China’s economy in 3Q grew at its slowest pace in 5 years, at 7.3%.