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Client Talking Points

ASIA

Ex-Japan, which loves Burning Yens (Up Dollar), Asian Equities have not enjoyed this Fed hike into a slow-down concept, at all. The Hong Kong Index and the KOSPI are both down -1.4% overnight; India is down -1.6%, and Indonesia is down -1.1% (all of those markets still signaling bearish TREND).

COPPER

#Deflation Risk is depressing the “reflation” bulls with Copper breaking to new lows down -0.7% this morning at $2.21/lb. Copper’s immediate term risk range is 2.19-2.30.

S&P 500

The S&P 500 is down for 4 straight days and starting to signal moderately oversold in the 2050-2070 zone, so we would cover some green shoot shorts so that we can lay them out again on the next bounce to lower-highs vs. that all-time #bubble high of 2130.

 

**Watch The Macro Show replay - CLICK HERE

Asset Allocation

CASH 59% US EQUITIES 7%
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

VIDEO (2mins) The Cyclical + Secular Slowdown Call https://app.hedgeye.com/insights/47433-2-things-sabotaging-the-bullish-cheap-oil-narrative… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

First say to yourself what you would be; and then do what you have to do.

Epictetus

STAT OF THE DAY

So far this year U.S. exports are down 11%. The only other times they have fallen this dramatically since the turn of the century were during the last two recessions.