Euro, Kospi and Copper

Client Talking Points

EURO

The Euro is down another -0.4% vs. the USD at $1.07 this morning with the more important line of support being the YTD low of $1.05. While Dudley’s latest comments on “inflation continues to run well below the Fed’s target” are new/dovish this morning, the FX market is obviously focused on the tragic events in France.

KOSPI

Last week was ugly for everything Global Growth Expectations and the KOSPI continued to break-down overnight down another -1%, taking it’s month-over-month decline from OCT’s counter TREND bounce to -4.3%.

COPPER

Fresh new lows (again) this morning as Copper’s #Deflation Crash continues, down -1.1% to $2.12/lb. The 6 month crash in Copper is -26% vs. WTI Oil’s at -35% - the Fed would have to back off the DEC hike to arrest the #Deflation.

Asset Allocation

CASH 61% US EQUITIES 5%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
MCD

Restaurants Sector Head Howard Penney attended MCD's investor meeting in New York City early last week. His takeaway from the meeting was that it was "very very bullish" for investors. Expectations were high, but CEO Steve Easterbrook came to NYC with big changes which have ultimately exceeded those expectations. "The big smile on Steve Easterbrook's face when talking about the current quarter was very telling," Penney writes. "He could not hide the enthusiasm." MCD increased the dollar value returned to shareholders by $10 billion. Penney and his team still see +30% upside from here.

RH

Restoration Hardware (RH) shares got caught up in the tumultuous selloff of other high-end retailers. But we're still bullish on RH. Here's why. RH Tampa has just opened. That makes 4 new Full Line Design Galleries in 90 days. And all will be open before the start of holiday shopping season and just in time to house the new product lines RH Modern and Teen. Add up the four stores and we’re looking at about 210k square feet. That alone represents about 25% growth in square footage.

 

When all is said and done, we still think this company has $11 in earnings power 4-years out, which is nearly double the consensus. We remain convinced that the debate should not be ‘if or when’ the stock hits $115, but rather is it going to $200 or $300? We’ll be looking at an earnings CAGR of 40-50% over five years. What kind of multiple does that deserve? 20x? 25x? 30x? We’d argue the higher end.

TLT

It was a nasty end to the week for the “growth is back” bulls. It was an equally nasty end to the week in equity markets. The S&P 500 was “going to all-time highs” Tuesday before retreating over 3% from Wednesday to Friday.

 

With continued data-driven confirmation that growth is slowing:

  • PPI (producer price index) printed -1.6% Y/Y for October
  • On a m/m basis, PPI declined -0.4% 
  • Declines in the energy component certainly bring the index lower, but PPI ex. Food and energy only printed +0.1% Y/Y which is ugly

Three for the Road

TWEET OF THE DAY

Pelosky: Our Worrisome ‘Tri Polar World’ and Global Implications https://app.hedgeye.com/insights/47545-pelosky-our-worrisome-tri-polar-world-and-its-global-implications… via @jaypelosky @HedgeyeDJ

@Hedgeye

QUOTE OF THE DAY

Take calculated risks. That is quite different from being rash.

George S. Patton

STAT OF THE DAY

U.K. Prime Minister David Cameron announced that the government will hire an additional 1,900 spies for its intelligence agencies MI5, MI6 and GCHQ following the terror attacks in Paris.