CLIENT TALKING POINTS
YEN
The Yen has a wacky wide risk range (which is the leading indicator for volatility) at 111.55-117.39 as the Japanese and Europeans battle it out, burning their respective currencies – USA gets #StrongDollar out of that, but don’t confuse that with a growth signal (you’d need #RatesRising too!)
RUSSIA
The Russian stock market continues to crash -27.8% year-to-date (Brazil down another -2% yesterday too), but no worries, the USA is going to “decouple” from 6 of the top 7 economies in the world accelerating their respective slowings (until the “chart” of the S&P 500 looks like it did on Oct 13th).
UST 10YR
The UST 10YR Yield is at 2.38% this morning, it remains in crash mode for 2014 (-21% from 3.03% where it started the year), so today’s jobs report really matters – if only because there’s so much asymmetry in SPY vs. everything else in the world. Immediate-term downside risk in the UST 10YR Yield to 2.22% - we remain very bullish on the Long Bond (TLT, EDV, etc.).
TOP LONG IDEAS
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%.
Asset Allocation
| CASH | 70% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 0% | |
| FIXED INCOME | 27% | INTL CURRENCIES | 3% |
THREE FOR THE ROAD
TWEET OF THE DAY
Got questions for @KeithMcCullough? He'll answer them live on @HedgeyeTV at 830 ET. You can watch live here: http://youtu.be/6INbR_YqY68
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QUOTE OF THE DAY
Be steady and well-ordered in your life so that you can be fierce and original in your work.
-Gustave Flaubert
STAT OF THE DAY
“Gas prices” represent only 6.4% of the median consumer’s budget.