RH - Atlanta Store Opening

Takeaway: Math on RH Atlanta says 65k sq. ft. is conservative

We'll be at the RH Atlanta Design Gallery Grand Opening on Thursday night. This is an important one because the store is 65,000 sq. ft. (45K indoor selling  + 20K outdoor) -- the first of the '2nd Generation' Design Galleries. Remember that the first wave of Design Galleries averaged about 20,000 feet. The Street 'gets it' that the economics in these stores are significantly better than in the legacy 9,000 ft stores, but there are massive questions (and doubts) about the economics associated with a mega-store like what RH is building in Atlanta.


A couple of reasons why we think this store size makes sense for RH in Atlanta.

1. As we outlined in our RH Real Estate Deep Dive, you need to look at market size of every single store -- which we define as home furnishings spend for consumers earning over $100k. We did that in every single region RH operates.

2. Our math suggests that there are 22 existing RH locations that could support a store of 60,000 or greater. This assumes 2018 market share of 10%, and sales productivity of $1,200.

3. Of these 22 locations, Atlanta is #3 on the list, behind New York and Houston. Our math suggests RH could have a store size as great as 90,000 feet.

 4. The rent economics work. Relative to RH's existing store in Atlanta, we think that occupancy math lines up well with the Denver store, which will open in 2015 (See math below).


RH remains our top idea in Retail.


RH - Atlanta Store Opening - 11 17 chart3

RH - Atlanta Store Opening - 11 17 chart4


Takeaway: In today's Macro Playbook, we highlight the crowded net short position in long-term Treasuries and why we want you to continue buying bonds.


Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)




  • Buyside Consensus Remains on the Wrong Side of Bonds: As Keith highlighted in yesterday’s Early Look, the speculative net SHORT position in long-term Treasuries via the futures and options markets just hit a 6M high of -126.2k, which represents an -86.1k WoW delta and -1.4 standard deviations shy of the TTM average. What’s important about that last quantitative signal is that it’s the most crowded net short positioning in long-term Treasuries since the week ended 12/31/13. Not ironically, the 10Y Treasury Yield  peaked on a closing price basis at 3.03% on that date. As most recently supported by our #Quad4 theme, we have remained completely on the other side of buyside consensus on bonds all year and continue to recommend this contrarian asset allocation at the current juncture. Much like our #RatesRising view of 2013, fading consensus on bonds has proven to be an extremely profitable exercise over the past two years.
  • “But, But I Can’t Buy Bonds Up Here”: Over the past 1-2 months, one question we’ve repeatedly received from subscribers is some version of whether or not our view on bonds has already played out. Such inquiries are typically prefaced with the assumption that XYZ investor has “missed the move” and that “all the money has been made”. We obviously disagree with this highly consensus premise and prefer to substantiate our claims with hardcore analysis. Moreover, we find it odd that we never get questions like that on the equity market; investors seem to love buying high in the stock market, but not so much in bonds (TLT, EDV, MUB) and in bond-like equities (XLP, XLU, VNQ)… Buy bonds and like it.
  • Keep Pushing Out Those “Dots”!: On that note, our proprietary G3 Monetary Policy Model shows that we’re nearing the strike zone for marginal easing out of the FOMC. While we don’t necessarily believe they’ll actually pull the trigger on another LSAP before year-end, we do find that a continued pushing out of the “dots” on tightening expectations is a highly likely occurrence based on our model. Looking back to QE1, QE2 and Operation Twist, our model was showing an average reading of 26% on the day marginal easing was either announced or strongly hinted at Jackson Hole. QE3 was the lone anomaly in this data set with a 58% reading; recall that its announcement caught consensus by surprise as well. To review, our G3 Monetary Policy Model is an amalgamated look at 10 economic and financial market indicators (on a percentile basis), whereby 0% implies a high probability of easing in the near term, while 100% implies a high probability of tightening in the near term. We are currently at a relatively low reading of 36%...




QE1 Announcement (11/25/08):

THE HEDGEYE MACRO PLAYBOOK - QE1 Announcement 11 25 08


QE2 Hint at Jackson Hole (8/27/10):



Operation Twist Announcement (9/21/11):

THE HEDGEYE MACRO PLAYBOOK - Operation Twist Announcement 9 21 11


QE3 Announcement (9/13/12):

THE HEDGEYE MACRO PLAYBOOK - QE3 Announcement 9 13 12





***CLICK HERE to download the full TACRM presentation.***



#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.


Early Look: November Rain (11/18)


#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.


Top Ten Reasons to Stay Short the Euro (11/5)


#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.


Early Look: Battlefield’s Vortex (11/11)


Best of luck out there,




Darius Dale

Associate: Macro Team


About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.


CHART OF THE DAY: Fed Balance Sheet Holdings vs. 10-Year Treasury Yield

CHART OF THE DAY: Fed Balance Sheet Holdings vs. 10-Year Treasury Yield - EL Chart  2 QE vs BS


Today's Chart of the Day, first published by our Financials team early in the year, shows that the end of QE1 & QE2 were both followed by sharp drops in 10-year treasury yields as the bond market priced in slowing growth and the inability of the private sector to successfully take the hand-off from the Fed.   We’re inclined to interpret the current weakness in the 10Y as a protracted version of this recurrent cycle.  Essentially, it's the same selloff seen in the last two iterations, but in slow-motion, over the duration of the taper instead of all at once.

Early Look

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November Rain

“If at first you don’t succeed, then skydiving definitely isn’t for you”

- Steven Wright


Every November for the last decade, my high school buddies and I gather ahead of Thanksgiving to toast our respective, eclectic journeys into grown up’ness.


Every November for the last half-decade, domestic inflation expectations have crashed in an acute, seasonal de-crescendo.                                                                                                                                                    

Every November, Global Central Bankers meet in the collective effort to arrest economic gravity. 


Every December, the Macro Muchachos of Hedgeye toast to the profit opportunities borne of the unique pervasiveness of this-time-is-different’ness


Back to the Global Macro Grind…


In mid-October, Fed researchers documented Residual Seasonality in the reported Inflation data whereby in 8 of the last 10 years consumer price inflation has tended to be higher in the first half of the year than in the second half – a pattern evident even in the seasonally adjusted data. 


The research doesn’t really offer a supporting theory for the serial seasonality but the publication of the research suggests the Fed is, at least, aware of the seasonality and may (partially) discount the magnitude of sub-target inflation reported in the 3rd and 4th quarters. 


Notably, the paper also fails to identify policy itself as a contributing factor in perpetuating that phenomenon. 


As can be seen in the 1st Chart of the Day below, policy initiatives have, in recurrent fashion, been implemented circa November in the wake of crashing growth expectations.  


November Rain - EL Chart  1 QE vs BE


The direction of causality is (perhaps) open to debate but given that QE initiatives (generally announced in late 3Q) drove recurrent bouts of commodity price inflation & ‘escape velocity’ optimism into the New Year and that inflation expectations, in regular fashion, collapsed subsequent to cessation of QE initiatives is certainly suggestive.   


The 2nd chart of the day, first published by our Financials team early in the year, shows that the end of QE1 & QE2 were both followed by sharp drops in 10-year treasury yields as the bond market priced in slowing growth and the inability of the private sector to successfully take the hand-off from the Fed.   We’re inclined to interpret the current weakness in the 10Y as a protracted version of this recurrent cycle.  Essentially, it's the same selloff seen in the last two iterations, but in slow-motion, over the duration of the taper instead of all at once.


The Fed wants to get out of QE if only to afford themselves the opportunity to get back in and the cost-benefit balance in terms of policy spillover to financial market (in)stability has shifted in favor of policy normalization, but established patterns/habits and embedded (dovish) ideologies are hard to break…. particularly with the Quad#4 scourge of disinflation and slowing growth becoming an increasingly tangible threat.    


In physics, Constructive Interference describes the phenomenon of wave propagation and the propensity for two, in-phase waves to meet and produce a resultant wave larger in magnitude than either of the individual waves.  Conversely, destructive interference, describes the propensity for two, out of phase waves to cancel each other out. 


How does that relate to global macro risk? 


A host of individual economies have traversed through Quad #4 over the last 5 years.  However, the preponderance of G7/G20 economies have been at different points along the economic cycle at any given time – effectively in a state of destructive interference with the collective effect being a global economy oscillating above and below middling growth.


One benefit from being “out-of-phase” is that a rotate-the-QE model among DM central banks was a viable strategy and the race to the currency war bottom could proceed in a more-or-less orderly fashion.   


At present, however, the global Macroeconomy is experiencing a constructive interference of sorts whereby individual country cycles are converging to an in-phase wave of disinflation and decelerating growth.  The expedited collapse in major currencies and the discrete rise of $USD correlation risk is symptomatic. 


Growth, domestically, was almost 5% in 2Q. The first  revision to 3Q GDP will  show a negative revision down to  ~3%.  The early estimate for 4Q from the Fed’s GDPNow model is pointing to  +2.6% growth.   


The U.S. has been a source of relative strength but the late-cycle data is cresting alongside persistent, negative revisions to global growth and inflation estimates.  With bonds leading asset class performance YTD and the canonical defensive trio of XLV/U/P leading the 2014 rise in sector variance, the market has been discounting some measure of the current reality for some time. 


Personally, I’m getting bored of being long the long bond and would welcome a shift back into early-cycle, high growth/high beta exposure but neither the quant nor the fundamental data are supportive of that, yet. 


In other physics 101 news, Work still = Force x Distance.  


Here, distance actually refers to displacement, so, if your net change in position is zero you didn’t technically do any work.  On a physics score, the Russell 2000, having round-tripped in price, hasn’t done any work for two weeks….technically, with the S&P 500 up ~0% on an inflation adjusted basis since mid-2000, we haven’t done any work in nearly two decades. 


Yup…all the collective speculation, all the sunken search and research costs, all the spurious activity = zero work done when measured in SPX price terms.    

To Tuesday morning existentialism and bull markets in (economic) #gravity. 


Our immediate-term Global Macro Risk Ranges are now:  


UST 10yr yield 2.29-2.35%

RUT 1149-1181

CAC40 4149-4262

VIX 12.53-16.01

Yen 114.04-116.94

WTI Oil 74.05-76.99

Gold 1130-1203 


Christian B. Drake

U.S. Macro Analyst


November Rain - EL Chart  2 QE vs BS



TODAY’S S&P 500 SET-UP – November 18, 2014

As we look at today's setup for the S&P 500, the range is 49 points or 2.12% downside to 1998 and 0.28% upside to 2047.                                    













  • YIELD CURVE: 1.83 from 1.83
  • VIX closed at 13.99 1 day percent change of 5.11%


MACRO DATA POINTS (Bloomberg Estimates):


  • 7:45am: ICSC weekly sales
  • 8:30am: PPI Final Demand m/m, Oct., est. -0.1% (prior -0.1%)
  • 8:55am: Redbook weekly sales
  • 10am: NAHB Housing Market Index, Nov., est. 55 (prior 54)
  • 11:30am: U.S. to sell 4W bills
  • 1:30pm: Fed’s Kocherlakota speaks in St. Paul, Minn.
  • 4pm: Net Long-term TIC Flows, Sept. (prior $52.1b)
  • 4:30pm: API weekly oil inventories



    • Senate to vote Keystone XL pipeline after House passed bill
    • Diplomats from the U.S., U.K., France, Germany, Russia and China convene in Vienna for nuclear talks as they attempt to finalize interim deal with Iran before Nov. 24 deadline
    • 10am: Senate Foreign Relations Cmte hearing on countering Islamic State in Iraq and Syria
    • 10am: FDIC board holds open meeting to consider final rule on revisions to Deposit Insurance Assessment System
    • 10am: House Foreign Affairs subcmte hears from leaders of Doctors Without Borders and Africare on Ebola
    • 10am: House Cmte on Transportation and Infrastructure hearing on FAA reauthorization
    • 1pm: House Energy and Commerce Cmte hears from CDC Director Tom Frieden on U.S. response to Ebola
    • 6:30pm: Sen. Energy and Natural Resources Chairwoman Mary Landrieu holds news conf. on Keystone after Senate votes   



  • Abe Delays Tax Hike, Calls Vote to Renew Mandate: NHK
  • Wall Street to Reap $316m From Actavis, Halliburton Deals
  • Sprint CEO Claure Shuffles Top Management in Turnaround Bid
  • AT&T Cutting Shared Data Plan by 23% in Pre-Holiday Promotion
  • Intel to Merge Loss-Making Mobile Business With PC Division
  • Samsung Moves Smartphone Engineers to Internet of Things
  • Nokia Rolls Out Android Tablet in Return to Mobile Devices
  • Blackstone Said to Sell NYC Tower to Ivanhoe for $2.25b
  • SunEdison, TerraForm to Acquire First Wind for $2.4b
  • Halliburton Said to Plan $4b in Disposals for Baker Hughes
  • Halliburton, Baker Hughes May Be Cut by S&P
  • Carnival Enlists Public in Push to Tackle Cruise Image
  • China Rejection of HK Stock Icons Evident in Lopsided Link



    • Dick’s Sporting Goods (DKS) 7:30am, $0.41 - Preview
    • George Weston (WN CN) 7:45am, C$1.53
    • Home Depot (HD) 6am, $1.13 - Preview
    • Jack in the Box (JACK) 4:02pm, $0.53
    • La-Z-Boy (LZB) 4:10pm, $0.34
    • Ma-Com Technology (MTSI) 4:05pm, $0.33
    • Medtronic (MDT) 7:15am, $0.96 - Preview
    • PetSmart (PETM) 5:55pm, $0.94
    • Sears Canada (SCC CN) 7am, NA
    • TJX Cos (TJX) 8:28am, $0.85 - Preview
    • Vipshop (VIPS) 4:01pm, $0.07                 




  • Shale Output Unchecked by Rig Cutback as Top Fields Become Focus
  • Gold Climbs to Two-Week High on Speculation ECB May Buy Bullion
  • Iron Ore Bear Market Deepens as China Home Data Add to Concern
  • China’s Ore Supplies Cushioning Nickel Output Amid Disruptions
  • Oil Fall Not Mirrored at Pump to Crimp Demand Growth: Julian Lee
  • Aluminum Falls to Two-Week Low on Concern Slowdown to Sap Demand
  • Goldman Says OPEC in Dilemma as Output Cut Seen Helping U.S.
  • Corn Falls for a 3rd Day as Record U.S. Harvest Nears Completion
  • MORE: Spot Gold Climbs to Highest Price This Month, Gains 0.8%
  • Sugar Rises Amid Prospects for Future Deficits; Cocoa Advances
  • Rubber Falls by Most in 2 Weeks in Tokyo Amid Japanese Recession
  • Singapore Iron Ore Futures for March Settlement Drop Below $70
  • Money Managers Raise Aluminum Bullish Bets on LME in Latest Week
  • WTI Rises Before OPEC Meeting as Dollar Weakens; Brent Stable



























The Hedgeye Macro Team



















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