Client Talking Points
Burning Yen = Strong Dollar (2x is a charm for U.S. as consumption and investment growth slows- both Europe and Japan torched their currencies); so now you have an extremely overbought USD with falling interest rates (classic #Quad4 setup = deflation).
WTIC is down -0.6% to $80.06 this morning and doesn’t like Down Yen = Down Oil; correlation risk here continues to be very high and the translation risk to energy related countries, stocks, and bonds remains very obvious. MLPs closed down -1% last week with equities melting up.
Russia is one of our preferred country shorts on Oil Deflation, down another -0.8% this morning to -22% year-to-date; we’re doing a lot of work on whether or not Japan and Europe opting to devalue will result in a Russian economic collapse
|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
GOLD: smashed by Japanese Money Printing Culture Day - risk range = 1167-1220/oz $GLD
QUOTE OF THE DAY
Float like a butterfly, sting like a bee.
STAT OF THE DAY
According to a report from the advocacy group Opportunity Nation, around 15% of Americans aged 16-to-24 are considered "idle youth" — they aren't in school and aren't employed.