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Client Talking Points

USD

The USD was +2.3% on the week and that keeps most other foreign currencies in crash mode (New Zealand Dollar -3.7% on the week!); took WTI Oil -4.9% on the week too – a Fed tightening into a slowdown will bring recessions in Texas, Canada, EM, etc.

RATES

One “good” jobs report (which actually saw NFP slow to 2.01% year-over-year vs. the cycle peak of 2.34% in FEB) that is subject to revisions trumps all other industrial and cyclical data slowing? We’ll see about that – TREND risk range on the UST 10YR looks like this now 1.85-2.51% and that will drive FICC volatility.

EMERGING MARKETS

Japan is not Indonesia – Nikkei loved the smell of Burning Yens overnight, closing +2%, but EM (Indonesian Stocks) resumed their crash closing -1.5% (Australia -1.8%, Thailand –0.9%) – recession is probably too mild a word to describe Commodity and EM investments now.

 

**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 60% US EQUITIES 6%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

Post earnings, the next catalyst for McDonald’s (MCD) is going to be next week's 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.

RH

Restoration Hardware (RH) hit all-time highs this week, but this story is far from over. We think RH will earn close to $11 per share in 3 years, which compares to the consensus estimate of just over $6. We estimate that the stock is worth $300.

 

The square footage component is well known, but we think people are missing…

  1. The productivity and market share that we’re likely to see from each new store,
  2. How scalable this business model is without commensurate capital investment,
  3. The leverage we’re likely to see is below-market real-estate deals being struck today and that should begin to impact the P&L. 
TLT

Current policy makers remain fixated on the jobs market, and this Friday’s report was good on the surface. Here’s the rundown:

  • The U.S. added +271K to non-Farm payrolls in October which blew out the expectation for +185K additions (last month’s awful print was revised even lower to +137K additions). Remember that the estimates are useless as the number is near impossible to predict. Keep that in mind.
  • Unemployment Rate moved lower to 5.0% for October from 5.1% in September
  • Wage growth was a positive surprise as Avg. hourly earnings printed a +2.5% growth rate for October vs. an expectation of +2.3%. The growth rate in September was +2.2%

So, again, on the surface it was a positive report. However, as we’ve emphasized, consumption and labor market strength are staples of an economy that is late cycle.

Growth continues to slow, and a rate hike has the potential to pull-forward a recession and flatten the yield curve. In the event this happens, you’ll be happy you held onto your long-bond position. If you haven’t bought into the #slower-for-longer view, the market is giving you the chance to buy bonds at another lower high… For the 5th time this year.

Three for the Road

TWEET OF THE DAY

Must-See: Post Jobs Report – What's Next? https://app.hedgeye.com/insights/47412-must-see-the-best-of-rta-live … via @Hedgeye CEO @KeithMcCullough #Fed

@Hedgeye

QUOTE OF THE DAY

In any project the important factor is your belief. Without belief, there can be no successful outcome.

William James

STAT OF THE DAY

Wage growth for production and nonsupervisory employees (~80% of the labor force) was +2.3%, below the private sector average of +2.5%.