The side by side statement (OCT vs. SEP) removed the Global Macro Risk that is #Deflation and, in doing so, perpetuated that risk via a hawkish move in the USD. The Fed also added the domestic risk that is labor #Slowing, so now rate hawks are going to get completely whipped around if we’re right on a GDP bomb this morning.
U.S. stocks rally on rates up, Financials up? Great. Australia and Indonesia (levered the wrong way to #Strong Dollar Deflation) closed down -1.3% and -3.0% overnight; Russia leads losers in Europe -2%, and Oil failed @TREND resistance backing off -1.2% to $45.
If we’re still right on #LateCycle GDP Slowing, easiest move to make this morning is to short the Financials (XLF, KRE, JPM) and buy Utilities and Treasuries (XLU, TLT, etc.) – this is the 8th or 9th time in 2015 they’ve “rallied” the 2yr to 0.75% and failed, FYI.
**Tune into The Macro Show at 9:00AM ET - CLICK HERE.
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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 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.
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.
REPLAY: "Fed Day Live" with Keith McCullough https://app.hedgeye.com/insights/47167-replay-fed-day-live-with-keith-mccullough… via @hedgeye
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U.S. venture capital firms raised $4.4 billion for 53 funds during the third quarter of 2015, a decrease of 34% compared to the number of funds raised during the second quarter of 2015, and a 59% decrease by dollar commitments, according to the Fundraising Report by Thomson Reuters and the National Venture Capital Association (NVCA).
Editor's Note: Below is a brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Click here if you'd like to subscribe and get ahead of the consensus.
"... As you can see in today’s Chart of The Day, “Serial Over-Optimism”, the US Federal Reserve has overestimated US GDP growth by approximately 100 basis points every year since Ben Bernanke had the courage to act on economic models that don’t work.
What’s 100 basis points?
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“If there is any period one would desire to be born in, is it not in the age of Revolution?”
-Ralph Waldo Emerson
Emerson was a 19th century essayist and poet from Boston, MA best known for leading what they called the “Transcendentalist” movement. It was a New Englander thing that probably resonates with many Americans (and other humans who think for themselves) today.
Transcendalists believed that “institutions ultimately corrupted the purity of the individual.” They believed people were at their best when they were “self-reliant” and able to think independently of government and its propaganda.
That’s why the aforementioned passage from Emerson is such a progressive one. On revolution against the Establishment, it’s a time “when the old and the new stand side by side… when the glories of the old can be compensated by the rich possibilities of the new era.”
Back to the Global Macro Grind…
At this stage of the Fed’s forecasting game, I don’t hope that you see the mediocrity in this un-elected institution that decides the fate of what used to be free-market moneys every day. Instead, I pray that you understand the risks associated with their market moving forecasts.
As you can see in today’s Chart of The Day, “Serial Over-Optimism”, the US Federal Reserve has overestimated US GDP growth by approximately 100 basis points every year since Ben Bernanke had the courage to act on economic models that don’t work.
What’s 100 basis points?
I know. I know. Let’s not get caught up in the details.
Instead, after the almighty Fed changed their forecast, albeit subtly, yesterday – let’s analyze where the Fed could be wrong (again):
This, of course, comes:
A) After the US Dollar stopped going up AFTER the slowing US jobs report (that they didn’t forecast) and…
B) Countries, Currencies, and Commodities took a break from crashing, for 3 weeks
So, after dynamically adjusting their latest forecast for everything they missed calling for to begin with:
Yep. Look at the overnight reaction to a more “hawkish” Fed:
*hint: the world’s leverage bubble (including inflation expectations) is denominated in Dollars
Oh, and after, “rates ripped” (5 basis points on the 10yr) on the Fed’s latest proclamation of lagging indicator faith, Bond Yields, globally, are falling (again) this morning ahead of another slowing US GDP report.
So, what if the Fed’s US domestic admission of #GrowthSlowing continues to be “data” driven like it has this week (New Home Sales, Durable Goods, and Consumer Confidence reports all slowed, again, sequentially) and the US Dollar rises as rates fall?
Oh, boy. That is the mother of all #Deflation Risk signals. So stand ready, side by side. Because the biggest risk of this entire “600 rate cuts globally” experiment is already here. It’s the Fed’s forecast that could very well perpetuate the next market crisis.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.99-2.11%
Oil (WTI) 42.97-47.32
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
QSR is on the Hedgeye Restaurants bench as a SHORT.
Trading at 12.3x EV / NTM EBITDA the stock is fully valued. The company’s robust development momentum is a clear positive; the shift in the development strategy at Tim Hortons is still an unproven business model. BK USA will have a very challenging time growing same-store sales as MCD recuperates. It will be critical to watch how MCDs new value platform rollout unfolds. As MCD reclaims a portion of the value focused customer base, BK will relinquish the biggest market share in the industry.
BURGER KING FRANCE
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