CLIENT TALKING POINTS
EARNINGS
86 of 500 companies have reported and this profit cycle recession we are entering is becoming broad based (i.e. not “ex-Energy”); Financials and Info Technology EPS -8% and -15%, respectively.
OIL
Oil is down another -1.5% this morning (after deflating -4.8% last week) and the most important callout here this morning is that the USD inverse correlation to everything WTI/Brent is burning off, i.e. not staying in the -0.7-0.9 zone anymore; this should confuse consensus.
UST 10YR
There is nothing confusing about buying LT bonds on every bounce to the top-end of our UST 10YR Yield risk range of 1.98-2.09%; post the bounce to 2.08% yesterday, back down to 2.04% this am, so at least top-down GDP growth and bottom-up earnings slowing is getting Bond Bulls paid.
**Tune into The Macro Show with Hedgeye CEO Keith McCullough in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
MCD
McDonald’s reports 3Q15 earnings Thursday, October 22nd before the market opens, with a conference call at 11:00am ET. We are expecting strong sequential improvement in performance globally. We look forward to giving you an update on the company’s performance next week, but this week we wanted to focus on the ‘Looming Crash in Beef.'
On Thursday, October 15th, we held a thought-leader call regarding the declining price of beef and how long it will continue. Prices have sky rocketed in recent years and are now standing at more than two standard deviations above the 30 year average. We believe a 50% decline down to historical averages is well within the realm of possibilities. Declining beef prices will be a major tailwind for McDonald’s as they navigate their turnaround.
RH
Restoration Hardware opened its new Full Line Design Gallery at the Cherry Creek Shopping Center in Denver this week. This is another anchor property -- using 53,000 feet of the 90,000 left vacant by Saks at Cherry Creek.
RH is taking up the size of its stores from an average of 8,000 square feet to about 40,000+ for its new stores – and productivity rates on these new assets are headed higher. In the old stores, RH could only show 10% of its assortment, while in the newer format stores, the company is showcasing better than 75%. Consumers can’t (and don’t) buy what they don’t see.
TLT
The #SlowerForLonger theme from Hedgeye Macro has been consistent and straightforward. Our pivot in advance of the most recent jobs report to get long of gold and stay out of the way short-side on commodities turned out to be a good position.
Growth expectations have been correctly revised, but there’s still a good amount of room between Hedgeye estimates and consensus. We are expecting GDP in a range of 0.1%-1.5% for Q3 and another 1-handle in Q4. If that proves accurate, flatter goes the Treasury curve (TLT, EDV), wider goes high yield spreads (bad for JNK), and down goes the USD (GLD).
Asset Allocation
| CASH | 62% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 6% | |
| FIXED INCOME | 32% | INTL CURRENCIES | 0% |
THREE FOR THE ROAD
TWEET OF THE DAY
VIDEO (2mins) https://app.hedgeye.com/insights/47004-mccullough-short-euro-over-yen… via @hedgeye
@KeithMcCullough
QUOTE OF THE DAY
Life is like a dogsled team. If you aren’t the lead dog, the scenery never changes.
Lewis Grizzard
STAT OF THE DAY
97% of Tesla owners said they would definitely buy their car again despite Consumer Reports forecasts that the Tesla Model S will have worse-than-average reliability.