CLIENT TALKING POINTS
DRAGHI
Mario Draghi is saying the ECB “cannot be relaxed” about fighting #Deflation – so, he’s devaluing the Euro again this morning. The Euro is down -0.5% to $1.06 vs. USD, reversing what was a Dollar Down day yesterday (in other words, he’s perpetuating commodity #deflation).
OIL
WTI Oil is looking to snap $40 again as the Dollar ramps on “whatever it takes” to try to bend/smooth economic gravity - you can expect that most OCT “reflation” data is going to mean revert to bearish TREND here in NOV as commodities crash.
RETAILERS
But, you “buy Retailers on low gas prices”, right? Gap (GPS) and William Sonoma (WSM) were the latest “misses” last night – and as long as you aren’t long anything other than AMZN, all good – U.S. Retail (XRT) is down -10.3% for 2015 year-to-date.
**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
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
**Please note we removed EDV from Investing Ideas yesterday. With the Fed hell bent on raising into a slow-down, we have to risk manage the risks associated with that. They have no idea on the economy (forecasts on growth have been wrong 70% of the time since Bernanke's un-elected reign). So the risk, is their forecast.
Asset Allocation
| CASH | 61% | US EQUITIES | 4% | |
| INTL EQUITIES | 3% | COMMODITIES | 0% | |
| FIXED INCOME | 28% | INTL CURRENCIES | 4% |
THREE FOR THE ROAD
TWEET OF THE DAY
Buy $ZOES - very strong quarter
@HedgeyeHWP
QUOTE OF THE DAY
By associating with wise people you will become wise yourself.
Menander
STAT OF THE DAY
Last month was the hottest October in 136 years of data, according to U.S. figures released Wednesday, making it the 8th record-breaking month so far in this year.