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Client Talking Points

EM

Emerging Markets didn’t like the Euro Devaluation last week, the EM MSCI Index closed -0.8% on the week. Reminder: there’s a $9T USD denominated debt #bubble that deflates on these tightening events (see our Q4 Macro Themes deck). Yes, ECB President Mario Draghi ramping USD is deflationary – ask Oil down -6.3% last week, or Energy Stocks (XLE -1.4%).

EURO

The Euro oversold to the low-end of our $1.10-1.13 immediate-term risk range vs USD into week’s end. European Equities had their Viagra move (+6.8% week for the DAX, crushing all U.S. indices with the Russell only +0.3%) and are showing no follow through this morning as Spain’s PPI deflates (again) to -3.6% year-over-year vs -2.2% last print.

UST 10YR

The German 10YR is at 0.51% and the UST 10YR pulls right back to 2.07% this morning as the world wakes up to more deflation and #GrowthSlowing news. Don’t forget that we get U.S. GDP for Q3 this week and most of the sell side is still in la la land.

 

**Tune into The Macro Show at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 68% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 32% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

What week it was for MCD shareholders! Shares finished the week up 7.3%. We have been saying all along that the third quarter of 2015 would be the inflection point for the McDonald’s (MCD) turnaround. After this print, it appears that the heartache is finally over at McDonald’s, as this quarter marks the first good quarter the company has had in two years.

 

From here, the upside in the stock price lies with the growth of All Day Breakfast, additional G&A cuts, national value offering implementation, reimaging of restaurants, commodity deflation, especially in beef and increased operational efficiencies, among others. In addition, the REIT is a potential driver of incremental value but not crucial to the long-term success of this call. With Steve Easterbrook at the helm we are confident this company will be better managed than it has been in a long time.

RH

RH unveiled a full floor of Modern product in their New York Flatiron store this week. The new concept sits on the first floor of the 21k sq. ft. store and marks the 3rd property in RH’s fleet (along with Denver and Atlanta) to carry the new product line.

 

Fundamentally and financially, we’re about to see growth at RH go on a multi-year tear. We think this stock is headed to $300 over the next 2-3 years. We’ve been patient for the catalyst calendar to begin, and the waiting is finally over.

TLT

As devaluation and global currency war jockeying from central bankers around the world continues, the acknowledgement of growth slowing continues to push yields lower. The long-bond was up on Thursday, after the ECB meeting, despite an easing-fueled rip in equities. The bond market doesn’t believe in the growth storytelling and we expect it to continue.

 

Remember that Down Euro Devaluation is a global TIGHTENING event because the world’s biggest asset price #deflation risk is that the world’s inflation expectations (commodities, debt, etc.) are DENOMINATED IN DOLLARS. That has implications for gold (risk to being long), but we want to get through the Fed meeting and GDP data next week before we pivot on a gold view. Stay tuned.

Three for the Road

TWEET OF THE DAY

‘Do It If You Love It’: Doug Cliggott’s Career https://app.hedgeye.com/insights/47109-do-it-if-you-love-it-doug-cliggott-s-career-reflections… via @hedgeye

@Hedgeye

QUOTE OF THE DAY

Success is more a function of consistent common sense than it is of genius.

An Wang

STAT OF THE DAY

According to researchers with an American office furniture company, the average office worker gets interrupted every 11 minutes. And after a break of flow, employees take an average of 23 minutes to get back on task.