CLIENT TALKING POINTS
OIL
#Quad4 Deflation remains our call for Q4 – this is much more dangerous to carry trading and commodity price linked equity and debt markets than ebola headlines; intermediate-term risk range for WTI crude is $64.67-86.11 and 26% of the High Yield market is energy related (vs. 10% ten years ago); we held a very bearish call on MLPs yesterday.
RUSSIA
Got burning oil petro-dollar risk? Putin does – Russian stocks leading losers this morning, down another -1.6% and continuing to crash at -25.8% year-to-date – will the Russian economy crash? There’s a good case to be made that that’s already happening.
EUROPE
Hope that German manufacturing PMI being better than horrible (51.8 vs 49.9 last month) is just that – headline hope; German Services PMI slowed to 54.7 vs 55.7 and places like France had a train wreck manufacturing PMI print of 47.3 anyway. Reiterating short European Equities, across the board on #EuropeSlowing.
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 | 66% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 4% | |
| FIXED INCOME | 26% | INTL CURRENCIES | 4% |
THREE FOR THE ROAD
TWEET OF THE DAY
Good top line from $UA. But only 21% EPS growth on 30% revs and just a penny beat might not be enough for a 57x p/e. SG&A up 39% -- big.
@HedgeyeRetail
QUOTE OF THE DAY
The more I practice, the luckier I get.
-Jerry Barber
STAT OF THE DAY
Japanese Nikkei is down -0.4% to -5.7% year-to-date and remains bearish TREND on Hedgeye quantitative signals.
