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The Macro Show Replay | November 9, 2015

 


#Deflation

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%.


November 9, 2015

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.36 2.04 2.34
SPX
S&P 500
2,033 2,119 2,099
RUT
Russell 2000
1,144 1,213 1,199
COMPQ
NASDAQ Composite
5,013 5,187 5,147
NIKK
Nikkei 225 Index
18,989 19,705 19,265
DAX
German DAX Composite
10,529 11,039 10,988
VIX
Volatility Index
13.74 18.97 14.33
DXY
U.S. Dollar Index
97.55 99.46 99.26
EURUSD
Euro
1.07 1.10 1.08
USDJPY
Japanese Yen
121.27 123.72 123.18
WTIC
Light Crude Oil Spot Price
43.03 45.96 44.52
NATGAS
Natural Gas Spot Price
2.20 2.40 2.36
GOLD
Gold Spot Price
1,078 1,127 1,088
COPPER
Copper Spot Price
2.21 2.32 2.24
AAPL
Apple Inc.
115 124 121
PCLN
Priceline.com Inc.
1,383 1,496 1,449
NUS
Nu Skin Enterprises, Inc.
33.05 37.91 34.96
JPM
J.P. Morgan Chase & Co.
64.01 68.56 68.46
VRX
Valeant Pharmaceuticals International, Inc.
72.40 97.07 81.77
FB
Facebook, Inc.
100 109 107

 

NOTE: We've made some updates and enhancements to Daily Trading Ranges. You'll now receive risk ranges for 20 tickers each day -  the last five of which will be determined by what's flashing on Keith's screen and by what names you're asking about. Contact support@hedgeye.com if you have any questions or feedback.


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INVITE | NUS | NEW BEST IDEA SHORT

Nu Skin (NUS) is on the Hedgeye Consumer Staples Best Ideas list as a SHORT.

 

INVITE | NUS | NEW BEST IDEA SHORT - CHART1

 

Today, Barron’s ran an article on VitaMeal raising some of the concerns that we have, but the article lacks many of the details around VitaMeal and the implication for NUS.

 

It's important to remember that NUS is currently under investigation by the SEC.  Our call focuses on the process, ethics and execution of getting the needy children the food, which is questionable at best.  If the SEC were to expand the scope of its investigation into NUS's business practices it would be financially devastating to the company.    

 

Our call on Wednesday, November 11th, will cover the following topics that were not covered in the Barron's article

  1. Quarterly impact on NUS's sales and EPS since Q1 2012
  2. How NUS's multiple charities work jointly to sell VitaMeal
  3. An example of how distributors may be deceiving consumers (see graphic below)
  4. Names of the people and organizations in Malawi that are tied to NUS
  5. Why VitaMeal could increase the scope of the SEC investigation into NUS
  6. The financial condition of NUS and why this scandal could cripple the company
  7. And more...

INVITE | NUS | NEW BEST IDEA SHORT - CHART2

INVITE | NUS | NEW BEST IDEA SHORT - CHART 3

 

The Barrons article also referenced a call, General Counsel Noah Bryson, had with VitaMeal distributors in October.  We have a transcript of that call available if you would like to read it.  Its quite entertaining.

 

Call with questions or contact if you would like to listen to the call.

 

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst


Must-See: Post Jobs Report – What's Next?

 

Hedgeye CEO Keith McCullough came out guns blazing on RTA Live Friday morning following the jobs report. In this excerpt, he weighed in with his thoughts on a host of stocks and sectors including junk bonds, gold, and how to handle Fed Chair Janet Yellen.


The Week Ahead

The Economic Data calendar for the week of the 9th of November through the 13th of November is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.

 

CLICK IMAGE TO ENLARGE.

The Week Ahead - 11.06.15 Week Ahead


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