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Client Talking Points

S&P 500

The S&P 500 is getting lots of attention as it recaptures the minds of those who think the 200-day moving monkey is a risk management indicator; for us, 1967 remains bearish TREND resistance and there is no immediate-term TRADE support to 1835; volatility’s risk range is wide open too with VIX = 15.06-28.49.

OIL

Oil experienced a one-day rally, and failed, again – WTI is down -0.9% this morning to $81.33 with no immediate-term support to $79.75; even after a -5.2% move in energy stocks (XLE) for October to-date, some of the best looking shorts on our screen remains energy and MLP related equities as #Quad4 deflation risk remains.

UST 10YR

When they bounce yields to lower-highs, you add to the winning team’s position in 2014 and buy the Long Bond (TLT, EDV, if you are looking at the ETF version); UST 10YR at 2.25% this morning with no support to 2.11% as both global and U.S. growth slows.

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 28% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
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%.  

Three for the Road

TWEET OF THE DAY

Both the FTSE and DAX remain bearish; Portugal down another -0.8% to -19.1% YTD this morning

@KeithMcCullough

QUOTE OF THE DAY

The creation of a thousand forests is in one acorn.

-Ralph Waldo Emerson

STAT OF THE DAY

According to a Google 2014 Shopping Intentions Study more than 50% of consumers surveyed said they'll start their research before Thanksgiving, with 26% of shoppers starting before Halloween.