Client Talking Points
The best longer-term idea we’ve had in Macro this year is Lower (Slower) For Longer, and the best way to express that view is being super bullish on the Long Bond (TLT) – 1.99% this morning with immediate-term oversold = 1.96%, in yield terms, but lower-highs across durations of resistance as #LateCycle employment and consumption (WMT -10% yesterday) slow.
We didn’t add Gold to the long side of our Macro Best Ideas until we could see what Gold loves more than anything else (Down Dollar, Down Rates – at the same time) in play; the question now is how fast can the U.S. data slow before ECB President Mario Draghi has to do EuroQE? That will be an up-Dollar #Deflation event; stay tuned; EUR/USD is signaling immediate-term overbought like Gold is at $1187.
We made this our best incremental U.S. Sector Style Short on our Q4 Macro Themes call as we thought the next big surprise would be U.S. #GrowthSlowing (more so than #Deflation, which is over a year old theme for us) related – consensus is way longer XLF (Financials) than XLE (Energy) and we’d stay with that pivot until Draghi (or Japan) devalues vs. USD again.
**Tune into The Macro Show with Hedgeye CEO Keith McCullough and Financials analyst Jonathan Casetelyn at 9:00AM ET - CLICK HERE.
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Top Long Ideas
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
TWEET OF THE DAY
VIDEO: Why U.S. Recession Is Closer Than You https://app.hedgeye.com/insights/46867-mccullough-why-u-s-recession-is-closer-than-you-think… via @hedgeye
QUOTE OF THE DAY
The quickest way to double your money is to fold it over and put it back in your pocket.
STAT OF THE DAY
Twitter is laying off 8% of its workforce nearly 336 employees to cut costs.