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Client Talking Points

CHINA

Our man Xi was being way too honest overnight admitting the Chinese economy has “relatively large downward pressure” right now – they didn’t like that in Shanghai, closing the index down -1% as EM Asia continues to trade terribly (Thailand -1.1%).

COMMODITIES

We realize our competition is still calling for “reflation” (they have been since July) and “green shoots”, but the CRB Index breaking down through lower-lows vs. the AUG low yesterday, and Copper crashing to new lows again this morning (-0.3% to $2.09) appear to be red shoots alongside the aforementioned Chinese confirmation.

RUSSELL 2000

The Russell 2000 continues to flash a bearish divergence vs the SPX, closing down -0.4% yesterday, taking it’s draw-down from the all-time #bubble high in July to -11.0%; reiterating the U.S. economic slow-down as the Russell is a purer domestic play on #GrowthSlowing.

 

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

Asset Allocation

CASH 61% US EQUITIES 4%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 28% INTL CURRENCIES 4%

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

VIDEO (3mins): Ignore Volume and Volatility At Your Peril https://app.hedgeye.com/insights/47599-mccullough-ignore-volume-and-volatility-at-your-peril

@KeithMcCullough

QUOTE OF THE DAY

You're happiest while you're making the greatest contribution.

Robert F. Kennedy

STAT OF THE DAY

Builder Confidence slipped -3 points in November, dropping for the 1st time in 6-months and retreating off the cycle high of 65 (revised +1 point) recorded in September. Across the sub-indices, Current Sales and 6M Expectations declined -3 points and -5 points, respectively, while Current Traffic rose +1 point sequentially.