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Long Bond Marches On

Client Talking Points

PMIs

Slower-for-longer, reiterated across Asia and Europe overnight with Japan’s PMI slowing to 51.0; China 49.8; Spain 51.7 (vs. 53.2 last month); Italy 52.8 (vs. 53.8 last month); France and Germany = 50.6 & 52.3 – all better than the U.S. (Chicago) PMI plunge to a recessionary 48.7 (vs. 54.4 last)!

RUSSELL 2000

The Russell 2000 bounced yesterday, but is still down  -15.1% from its #Bubble peak and very much signaling that a crash type draw-down (greater than 20%) is in play like you’ve seen from Hong Kong to Germany. This reiterates that you need to get liquid on rallies, avoiding small cap/high beta.  

UST 10YR

UST 10YR Yield was actually down on the day yesterday and down again this morning to 2.05%. We’re one more slowing U.S. jobs report away from a 1-handle; risk range on the 10YR continues to signal lower-highs (2.14% resistance) with all-time lows in play.

 

**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

 

  

Asset Allocation

CASH 70% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 8%
FIXED INCOME 22% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald’s clearly continues to be well-liked by our Restaurants research team and is a near perfect fit into our macro team’s current "style factor" preferences. This stock is high cap with a low-beta, coupled with a company turnaround story that is currently well underway. We believe this stock will do well through this tumultuous time in the market.

 

As previously mentioned, the company has all day breakfast starting on October 6. We anticipate this development as not only driving increased visits from existing customers, but also new customers that maybe don’t wake up early enough to get breakfast by 10:30am (or simply just people that enjoy eating breakfast items outside of the morning!)

PENN

As Sector Head Todd Jordan notes, "PENN should benefit from the release of state gaming figures over the next few weeks. Recall that August was weaker than many thought. While we predicted this particular slowdown, our model is showing a sharp September rebound.

 

September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels.  

TLT

Is the U.S. economy still showing signs of a cyclical slowdown? Yes.  If you, like us, remain skeptical on the said policy path from our omnipotent central planners, and you believe growth continues to slow, then we respectfully submit that you sit on your GLD and TLT allocations.

 

3 GDP comps are difficult. And, once the data comes out, we think expectations will be downwardly revised again. In other words, wait for yet another Fed punt on a 2015 hike.

Three for the Road

TWEET OF THE DAY

NEW VIDEO | Eye on The #Election Vol. 1: Fondness Fading for #Trump and #Hillary https://app.hedgeye.com/insights/46627-eye-on-the-election-vol-1-fondness-fading-for-trump-and-hillary… via @HedgeyeDJ cc @KeithMcCullough

@Hedgeye

 

 

QUOTE OF THE DAY

One important key to success is self-confidence. An important key to self-confidence is preparation.

Arthur Ashe

STAT OF THE DAY

Apple announced that it sold a record 13 million iPhone 6s and 6s Plus handsets over launch weekend, breaking last year’s record of 10 million.


October 1, 2015

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BULLISH TRENDS

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BEARISH TRENDS

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Cartoon of the Day: Train Wreck

Cartoon of the Day: Train Wreck - Consensus train wreck cartoon 09.30.2015

We've been called a lot of things over the years at Hedgeye. But one thing we've never been accused of is being consensus. That's a large part of the reason we got the biggest call of 2015 correct. In case you somehow missed it, global growth is slowing, markets are reeling, and we were the one independent financial research firm actively warning our subscribers every step of the way. 


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

Eye on The Election Vol. 1: Fondness Fading for Trump and Hillary

 

In this inaugural edition of Hedgeye's “Eye On The Election” series, Director of Research Daryl Jones delivers a distilled overview of the election cycle so far and what candidates on both sides of the aisle can expect moving forward.


McCullough: Get The Hell Out of The Way When Markets Start to Crash

 

During this animated brief excerpt from RTA Live today, Hedgeye CEO Keith McCullough responds to a subscriber’s question about whether to buy a particular small cap stock.


Big Win For Ralph Lauren Shareholders (And Hedgeye's McGough Who Added $RL to His Long List Monday)

Talk about good timing...

 

Big Win For Ralph Lauren Shareholders (And Hedgeye's McGough Who Added $RL to His Long List Monday) - zzzz ralph lauren

 

Veteran Hedgeye Retail Sector Head Brian McGough added iconic retailer Ralph Lauren (RL) to his team's Core Long Idea List this past Monday. Shares of RL are up over 12% today following news of the company's apppointment of its new CEO Stefan Larsson.

 

Big Win For Ralph Lauren Shareholders (And Hedgeye's McGough Who Added $RL to His Long List Monday) - zzz rl mcgough

 

Big Win For Ralph Lauren Shareholders (And Hedgeye's McGough Who Added $RL to His Long List Monday) - zz 44 rl

 

Here's a complimentary look at the research note McGough and his team sent to subscribers yesterday following the big news.

 

RL | Fountain of Youth

We think this CEO change is a huge win for RL shareholders. It’s important, we think, for the age of the executive team at most consumer brands to be as closely aligned with its core customer as possible. For too long, that’s been going the wrong way at RL. But RL just made the biggest adjustment in that regard that we’ve seen at any company – perhaps ever.

 

We’re definitely more inclined to own RL on this announcement. Questions around management and Ralph’s oversight that we outlined in our June Vetting Book (CLICK HERE) were the biggest factors keeping us back from getting involved on the Long side. Those are now done. Now we need to get through the ongoing restructuring and SAP implementation, and yes, we’re still blown away that these two are happening at the same time.  But that’s 2-3 quarters away from an improving delta on the EBIT line. We think that once the bottom is in (perhaps in the early Feb print), demand to own this one will be strong.

 

Some Thoughts On The Announcement

  1. It’s Long Overdue. Ralph will be 76 years old in two weeks, making him the 7th oldest CEO in the S&P500. Since Roger Farah left his COO post in May 2014, Ralph has been taking on more and more responsibility, at a time when his age dictates he should probably be doing less.
  2. Jackie Is Out. Jackie Nemerov, current President and COO, will also be leaving in November. It’s amicable, but our sense is that this wasn’t exactly in her immediate-term plan. Nobody will come out and say it…but here goes. We’re happy to see Jackie go. Jackie is tough as nails and is a great leader internally, but her external profile was not good – especially with Wall Street. In her mid-60s, she helped prop up the average age in the C-Suite along with Mr. Lauren.
  3. Chris Peterson (49) remains President of the newly formed Global Brands Group. In other words, the six-headed Hydra that is Ralph’s new Brand structure entirely reports to him. This is a massive project, and the company’s bottom line will go nowhere until it’s done. As noted, we think its 2-3 more quarters until the rate of change turns positive.  
  4. New Guy Is From Where? All the calls we fielded this evening were hyper concerned about one thing…that Stefan Larsson, the new CEO is coming from none other than Old Navy – not exactly a fashion mecca. True.  That said, Old Navy is Gap’s biggest division, and both knows and serves its customer extremely well – even if it’s not RL’s customer. While no one on our team has met him personally, everything we know about his resume is impressive – very much so. First off, he’s 40-years old. He spent the bulk of his time at H&M where he rose from Regional manager, to Head of US Expansion, Head of Global Expansion, and ultimately Head of Global Sales. This is key because one of the biggest threats to RL is getting beat by Fast Fashion retailers like H&M.  Ultimately, he’s got age on his side, time at H&M, International experience, and a background in store growth – all the things that RL needs to grow.
  5. Too Young? We’ve already heard that one several times, and no, we’re not concerned. We’ll take a hyper-overachieving young gun over an ‘above average’ fifty-something anyday. We think age is irrelevant.
  6. Dramatic Changes? We heard this three times tonight. “Will the new CEO come in and make sweeping changes?” Keep in mind that Mr. Lauren’s office will still be occupied everyday, as he will maintain his role of a) Chairman of the Board, and b) driver of the creative process within Ralph Lauren. Also, there’s no coincidence at the massive age gap between Lauren and Larsson. Larsson could almost be Lauren’s son – in fact, he's 3-years younger than David Lauren, SVP Marketing at RL. Ralph was likely attracted to having someone young who is firmly entrenched to carry out his agenda by working side by side with him over the course of 2-3 years without rocking the boat. Remember, Ralph has 81% of the voting stock at RL – the second highest in the S&P (CEO of Universal Health is higher at 83%). In other words, Larsson will likely not so much as change the wattage of light bulbs in the Mansion without Ralph’s approval. The only friction we’d expect would be with Nemerov. But we don’t have to worry about that anymore. 

Big Win For Ralph Lauren Shareholders (And Hedgeye's McGough Who Added $RL to His Long List Monday) - zzz Stefan Larsson 2 normal

Stefan Larsson

Image Source: Gap

 

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Big Win For Ralph Lauren Shareholders (And Hedgeye's McGough Who Added $RL to His Long List Monday) - zz chart 13

 

***If you would like access to our retail team's institutional research please email sales@hedgeye.com


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