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Client Talking Points


Two bad days back-to-back for the Nikkei, so if you are looking for follow through on the reflation trade or otherwise, the Nikkei certainly didn’t deliver it neither have other Asian equities. Japan is down 1.9% overnight, down 3% in last two days. Honk Kong was down again last night, down 1.7% for the week and China closed down .9%. Overall it was a very weak session in Asia. The down dollar is obviously not good for Japanese stocks because this is bullish for the Yen.



The DAX had its dead cat bounce #Boom and straight back down in crash mode. Germany cut its GDP forecast this morning. Believe them! It’s a good idea to listen to these governments and central planners when they are getting bearish…it must be really bearish. Europe is going to be in a recession next year, this is the call and why you should stay away from a lot of these European equities. 


While the hedge fund community continues to use S&P futures as their short selling mechanism, the Russell 2000 does not seem to have that same short interest and therefore goes down faster, currently down 11.4% from its summer highs. The Russell is more anchored to a U.S. growth slowdown as well, making it a pure play on domestic growth expectations falling. Domestic growth shorts continue to work due to an implosion in the data – PPI and Retail Sales down (which sets up a nasty-looking Holiday season).


**Watch a replay of The Macro Show with Financials Sector Head Josh Steiner giving an update on earnings - CLICK HERE


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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.



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


Is Recession Setting Sail For #Europe? https://app.hedgeye.com/insights/46851-recession-setting-sail-for-europe… via @KeithMcCullough #ECB #Draghi #economy #FX #euro



Never hate your enemies, it affects your judgement.

Michael Corleone


The American worker took an average of 16 vacation days last year, a 35-year low and down from 21.1 days in 1996.