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Client Talking Points

USD

Looks like the most expedited part of the “Dovish Fed” pivot got priced in, so be careful with the “reflation” trades (Oil & Gas stocks +3% yesterday) as USD holds its AUG support level of 93.40 (USD Index) and EUR/USD backs off at 1.14.

GOLD

Pre the recent U.S. jobs miss, our pivot was A) not to be short commodities and B) be long Gold – that’s signaling immediate-term TRADE overbought (because USD and rates are signaling oversold with 3-month Treasuries yielding negative -0.1%).

SPY

What happens when 10,000 hedge funds are using the same hedge? Looking forward to seeing how many shorts covered when we get the CFTC data today; sentiment at 15-16 VIX is off-side to the bullish side again; no resistance for VIX to 24-28 and/or support for SPX to 1965, then 1917 – Financials (XLF) our fav sector short right now vs. Utilities (XLU) long.

 

**Watch a replay of The Macro Show with Restaurants & Consumer Staples analyst Howard Penney - CLICK HERE

Asset Allocation

CASH 65% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 5%
FIXED INCOME 30% 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

We remain the most bullish house on Wall st, on the Long Bond

@KeithMcCullough

QUOTE OF THE DAY

People are illogical, unreasonable, and self-centered. Love them anyway.

-Kent M. Keith

STAT OF THE DAY

Alcohol cost $77 billion in impaired productivity at work in 2010, according to the CDC's breakdown published in the American Journal of Preventive Health.