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    MARKET EDGES

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Client Talking Points

UST 10YR

We are probably more bullish than anyone, on bonds – long-term Treasury Bonds, that is – and it’s simple; #SuperLateCycle is what it is and this morning’s economic data from the German ZEW Index (OCT) slowing to 1.9 from 12.1 to only the 2nd #Deflation (year-over-year negative) print for CPI in the UK since 1960…and let’s not forget the recent U.S. jobs report. The UST 10YR is now at 2.05% and falling.

REFLATION

Down Dollar, Down Rates is the bull case for Gold – and with the Bond Market closed, we’re getting that and more “reflation” priced in with Oil and Gold +0.6% and +0.8%, respectively this morning. We turned bullish on Gold in August and added it to our Top Macro Ideas in our most recent Q4 Macro Themes presentation.

DAX

The German DAX bounced and failed @Hedgeye resistance, putting the crash right back in play (> 20% decline from April) with the DAX -1.2% this morning after terrible economic data (CPI dead flat at 0.0% and ZEW #slowing). We don’t think ECB President Mario Draghi will allow the EUR/USD to go higher for much longer – so realize what that means on the Down Dollar “reflation” trade.

 

 

**Watch a replay of The Macro Show with Healthcare Sector Head Tom Tobin and analyst Andrew Freedman at 9:00AM ET - CLICK HERE

 

Asset Allocation

CASH 65% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 31% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
RH

We think that the catalyst calendar is just starting to pick up, and should be the best that Restoration Hardware has seen – perhaps ever. There are two new and significant merchandising initiatives, which are solid on their own. But to pair them with the square footage growth acceleration seems almost like a fantastic coincidence. But it’s not. This has been in the plan all along. There’ll be many more new concepts and classifications – though we’d argue that the company can go deep and add $2bn in revenue with what it has.

 

To be clear, there’s much more to this story than just square footage growth – like the ability to consistently merchandise product people want in quantities they need.  Without the ability to deliver on that requirement, a retailer could have the greatest store in the hottest location with the best demographics, and it will still be nothing but a liability (regardless of how low the rent might be). That’s why square footage growth is grinding to a halt for other U.S. retailers. That’s also why the growth profile at RH is so powerful, and unmatchable by anyone we see in Retail today.

PENN

As we predicted, a rise in September regional revenues would serve as a catalyst for regional gaming stocks, and in particular, Penn National Gaming. For the record, PENN is up +12% since we added it to Investing Ideas back in May, outperforming the S&P 500 which has fallen -5% since then.

 

We believe shares of PENN have a lot more room to run, given its strong performance in key markets like Ohio and its successful opening in Massachusetts.  A handful of states still need to report their September revenue figures, but numbers have been in line with our expectations thus far.

 

PENN will be reporting Q3 earnings on October 22nd.

TLT

Bottom Line: We remain 50% below Bloomberg Consensus on GDP growth. Wall Street, the IMF, World Bank and OECD are all still forecasting global growth of around 3% for 2015.  We reiterate our call for growth to come in at or below half that rate.

 

While most #LateCycle growth expectations in macro markets peaked in April, the US stock market peaked in July as bond yields hit the market with their last head-fake of a “breakout.” That makes this bear market in growth expectations relatively young. With that considered, sit back and relax with your TLT and EDV.

 

Three for the Road

TWEET OF THE DAY

Special Excerpt from Hedgeye’s Q4 Macro Themes Call: #GameOfSlowing https://app.hedgeye.com/insights/46824-special-excerpt-from-hedgeye-s-q4-macro-themes-call-gameofslowing… via @hedgeye

@Hedgeye

QUOTE OF THE DAY

Chaos isn’t a pit. Chaos is a ladder.

Petyr Baelish

STAT OF THE DAY

Athletic footwear spend per capita is highest in the 14-24 and 35-45 year-old demographic annually spending $60 and $71, respectively.