Client Talking Points
The front-month volatility was down -26% last week, but +17% for the year-to-date – which is next into more U.S. #GrowthSlowing data like you had with New Home Sales on Friday? Immediate-term risk range of 14.34-27.86 now for the VIX; there’s a ton of asymmetry in that.
Don’t look now, but into and out of the official #ChinaSlowing GDP report the Shanghai Comp is down for 5 consecutive days and the Hang Seng remains bearish TREND @Hedgeye – no matter what they do with European Equities this morning, global #GrowthSlowing remains clear.
After another -1.3% week for WTI, you get another small bounce of +0.2% this morning – that’s not going to do anything other than remind you that #Quad4 deflation is bad (it felt really bad on Oct 14th, so let’s learn from that).
|FIXED INCOME||28%||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
For the first time in three years I'm not bearish into a $COH print.
QUOTE OF THE DAY
A lot of people seeking new beginnings have never finished with the past.
STAT OF THE DAY
OPEC’s largest producer, Saudi Arabia, receives 85% of its export earnings from the oil and gas sector.