Client Talking Points
Post their month-end markups for OCT, Japan and China dropped -2.1% and -1.7%, respectively, overnight – on any metric (never mind a cluster of metrics) we follow, that side of the world hasn’t stopped slowing in GDP terms.
But “stocks are up” if you back out the 2000 stocks in the Russell 2000 which dropped another -0.4% last week to -3.6% year-to-date (in the Russell 3000, 62% of stocks are still -20-25% from their #bubble peaks) – reminds us of OCT 2007.
We keep hearing that the jobs report this week could “surprise to the upside” but we haven’t had 1 email that suggests it could be another slowing one… weird. Since FEB all the rate of change in the U.S. jobs market has done is slow from its peak.
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Top Long Ideas
Last week was a big week for McDonald’s (MCD), as they reached the inflection point we were predicting. Post earnings, the next catalyst for the stock is going to be the November 10th analyst meeting.
The meeting will be an opportunity for management to shed more light on the progress of all day breakfast, additional G&A cuts and the potential of doing a REIT. Our Restaurants team remains bullish on the name, and they look forward to giving you some material updates after the meeting.
Restoration Hardware (RH) shares gained 5.8% this past week. The margin story here is explosive. Margins were sitting below 10% on Friday, and we think they will be above 16% in 3 years. The key reason is that expense leverage on these new properties is like nothing we’ve ever seen (i.e. RH pays only 10% more for square footage that’s 300% larger).
In addition, the company does not have to proportionately grow its sourcing organization with the growth in its store base OR its category expansion.
Our estimate is that the company will add $3 billion in sales over 3-years and climb to $11 in EPS. The earnings growth and cash flow characteristics to get to that kind of number would support a 30+ multiple. In the end, we’re getting to a stock in excess of $300.
Our forecasts for domestic economic growth continue to be more accurate than the consensus. We anticipate economic growth will get a lot worse from here. That is why you want to own long-term bonds (TLT, EDV).
Three for the Road
TWEET OF THE DAY
How to Be Positioned For a #LateCycle Slowdown https://app.hedgeye.com/insights/47243-how-to-be-positioned-for-a-latecycle-slowdown… cc @KeithMcCullough @HedgeyeDDale $XLF $XLU
QUOTE OF THE DAY
You're happiest while you're making the greatest contribution.
Robert F. Kennedy
STAT OF THE DAY
341 of 500 S&P 500 companies have reported so far this Earnings Season, sales are down -5.5% and EPS is down -3.9%.
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10/30/15 RUTH | #BEEFDEFLATION
10/29/15 EAT | TIME FOR A RESET
10/29/15 BURRITO TRACKER | CMG, QDOBA (JACK)
10/28/15 PNRA | NO “CHOPPY” OCTOBER HERE
10/23/15 DNKN | THE DONUT TRACKER
10/22/15 MCD | THE ROAD TO $150
Casual Dining and Quick Service stocks that we follow widely underperformed the XLY last week. The XLY was up +1.7%, top performers on a relative basis from casual dining were BOBE and BBRG posting a decrease of -1.4% and -1.6%, respectively, while NDLS and WEN led the quick service group this week up +5.8% and +1.8%, respectively.
XLY VERSUS THE MARKET
From a quantitative perspective, the XLY looks BULLISH from a TRADE and TREND perspective, TREND support is 76.98.
CASUAL DINING RESTAURANTS
QUICK SERVICE RESTAURANTS
Keith’s Three Morning Bullets
341 of 500 S&P companies have reported – sales are -5.5% and earnings -3.9% and USD #Deflation Risk hasn’t gone away:
- ASIA – post their month-end markups for OCT, Japan and China dropped -2.1% and -1.7%, respectively, overnight – on any metric (never mind a cluster of metrics) we follow, that side of the world hasn’t stopped slowing in GDP terms
- RUSSELL – but “stocks are up” if you back out the 2000 stocks in the Russell which dropped another -0.4% last week to -3.6% YTD (in the Russell 3000, 62% of stocks are still -20-25% from their #bubble peaks) – reminds me of OCT 2007
- JOBS – I keep hearing that the jobs report this week could “surprise to the upside” but haven’t had 1 email that suggests it could be another slowing one… weird. Since FEB all the rate of change in the US jobs market has done is slow from its peak
SPX immediate-term risk range = 2015-2096; UST 10yr Yield 1.99-2.19%
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Have a great weekend.
Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.
- "Trade" is a duration of 3 weeks or less
- "Trend" is a duration of 3 months or more
- "Tail" is a duration of 3 years or less
Anything longer than 3 years is unpredictable.
Hedgeye CEO Keith McCullough and macro analyst Darius Dale hosted a LIVE + INTERACTIVE online event offering market commentary following the latest FOMC statement. McCullough also distilled the biggest global economic risks and explained how to position your portfolio going forward.
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