Client Talking Points
The Yen is burnt to a bloody crisp, trading $113.31 vs. USD last and has one of the widest immediate-term risk ranges we have ever seen in FX (109.37-113.66) so that should continue to perpetuate both FX market (and equity + fixed income linked) volatility.
Yen Down = Oil Down (Dollar Up) and now you see the next leg down -2.7% WTI to $76.66/barrel as whoever was trying to defend the $80 line falls down – this is textbook #Quad4 deflation and its catching up to equity and fixed income expectations, by sector.
Sector variance continues to rise as Oil and inflation expectations crash (Oil -28% since June); Energy Stocks (XLE) -1.6% on the day yesterday to -12% year-to-date (Basic Materials, XLB, -0.7% to -5.2%) vs. Healthcare (XLV) which #Quad4 likes long (pricing power) +0.1% to +12.3% year-to-date.
|FIXED INCOME||29%||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
Let's be clear, $FL is not in trouble bc Ken Hicks (CEO) is leaving, Hicks is leaving bc FL is in trouble.
QUOTE OF THE DAY
A wise man gets more use from his enemies than a fool from his friends.
STAT OF THE DAY
Japanese Household Spending is down -6% year-over-year, Japanese Housing Starts are down -14% year-over-year and Japanese Construction Spending is down -40% year-over-year.