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Client Talking Points

U.S. DOLLAR

Relentless USD strength as my Berkeley boy Williams (San Fran Fed) hits USA Today with the “recent data supports a rate hike” – apparently he missed all the industrial/cyclical, ISM, and GDP data. But raising rates into #LateCycle slow-down is mucho deflationary for many asset prices – DEC 4th U.S. Jobs Report up next.

OIL

Oil continues to get smoked on the biggest risk that remains (the Fed’s forecast for an economic acceleration), with WTI down -1.1% to $43.69 with an important level of immediate-term support at $43.02. One interesting idea (developing, timing matters) is buying Oil if that DEC 4th jobs report is more in line with the slowing labor TREND.

GREECE

Strong Dollar Debt #Deflation is public enemy #1 to the world’s most levered countries and companies. Greek stocks continue to diverge negatively vs. DAX this morning, down -1% and the Greek 10YR Yield is up +14 basis points day-over-day.

 

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

**NEW VIDEO (2 mins)

McCullough: It’s Looking A Lot Like November 2007 https://app.hedgeye.com/insights/47457-mccullough-it-s-looking-a-lot-like-november-2007… via @KeithMcCullough #markets $SPY #earnings

@Hedgeye

QUOTE OF THE DAY

The best way out is always through.

Robert Frost

STAT OF THE DAY

The Dallas Fed’s Manufacturing Outlook has dropped for 10 months in a row.