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Client Talking Points

U.S. RETAILERS

Smoked by Macy’s CEO talking about that darn #ConsumerCycle slowing theme we’ve been hammering on since July – XRT (our preferred way to be short U.S. Retailers in size) is down -11.2% since the July 15th consumption cycle top and down -7.2% year-to-date.

DRAGHI

After suggesting #Deflation wasn’t a risk and European growth was “encouraging”, our man Mario (ECB President Mario Draghi) pivots to “downside risks are now clearly visible … and inflation dynamics have weakened.” Finally, some #truth – don’t forget that Down Euro = #Deflation via Strong USD.

#DEFLATION

Just an awful November for whoever bought into the “reflation” thing that our competition has been pitching since July. The CRB Index was down another -0.6% yesterday, testing the lows as Copper blows through the lows to $2.18 and levered Energy stocks move down -4% on the day.

 

**Tune into The Macro Show with Macro analysts Christian Drake and Ben Ryan 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

Shhh! Macys CEO Just Hinted At Recession | $M

https://app.hedgeye.com/insights/47486-shhh-macy-s-ceo-just-hinted-at-recession… via @HedgeyeRetail @KeithMcCullough #Macys … via @KeithMcCullough #markets $SPY #earnings

@Hedgeye

QUOTE OF THE DAY

You cannot plough a field by turning it over in your mind.

Author Unknown

STAT OF THE DAY

Wal-Mart is projecting that its earnings may fall by as much as 12% during the next fiscal year.