Client Talking Points
The chitter “chatter” about “BOJ buying” just couldn’t keep the Japanese currency burning experiment ball in the air into the close (Nikkie -0.9%) – was that it? The risk range for the Nikkei is wacky wide now = 14560-17161, #enjoy.
Oil had a 1-day bounce and then went right back down again, -0.3% to $78.48 as #Quad4 deflation sinks into the psyche of those who have been net long of oil carry trading since The Bernanke introduced it in 2008; intermediate-term risk range now $64-84.
Utilities (XLU) were up +2.3% yesterday to, get this, +22.6% year-to-date with the Russell 2000 flat on the year. We know – everyone nailed that. But this is what you get as bond yields crash (UST 10YR Yield -23% year-to-date) – bond proxy ramps in equity land.
|FIXED INCOME||25%||INTL CURRENCIES||3%|
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
Restaurant owner Chuy's $CHUY sinks 30% in worst day ever http://finance.yahoo.com/news/restaurant-owner-chuy-s-sinks-30--in-stock-s-worst-day-ever-165739285.html?soc_src=mediacontentstory&soc_trk=tw … via @YahooFinance
*** @HedgeyeHWP went short on 10/28
QUOTE OF THE DAY
Someday is not a day of the week.
-Denise Brennan Nelson
STAT OF THE DAY
According to the Energy Information Administration, in 2013 a full 68% of Russian exports, or more than $350 billion dollars, came from energy, with more than half of that from crude oil. In 2009, after crude oil declined by 80% in 2008, that the Russian economy shrunk by 7.8% in 2009, the most of any G20 economy.