Client Talking Points
Another #StrongDollar week in the bag (+0.6% USD Index to +10.3% year-to-date) after Draghi Devaluation sent the Euro -1.2% on the week to -12% year-to-date – this is as deflationary a force as it was in the summer-time – FICC markets get that – Equities, not so much.
Crash in Copper (-1.8% this morning to $2.02) continues and Oil is down another -3%, testing $40 WTI (again) – hardly the green shoots a supply/demand bull is looking for, but we’re probably being too bearish looking at fact vs fiction.
UST 2YR spike continues to 0.93% this morning as the Fed abandons the “data dependence” thing and goes with whatever the S&P 500 is doing instead. USD and short-term rates say DEC hike – so does the Yield Spread, compressing 9 basis points last week, which reads as a hike perpetuating both #Deflation and #GrowthSlowing.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE.
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Top Long Ideas
MCD is reducing G&A by $500 billion compared to the $300 million target announced in May the vast majority of which they expect to realize by the end of 2017.
Expectations going forward are for system sales to grow faster than G&A. The incremental savings are primarily derived from savings coming from a more heavily franchised and less G&A intensive structure; streamlining of corporate and former Area of the World organizations and realizing greater efficiencies through the global business services platform. The G&A savings represent roughly a 20% reduction off of the G&A 2015 base of $2.6 billion.
Another big shift is that MCD is now aiming to refranchise 4,000 restaurants by the end of 2018, with mostly all of them to take place in the high-growth and foundational segments.
Below are two callouts from this Thursday's Willams-Sonoma (WSM) third quarter earnings print as it relates to Restoration Hardware (RH). RH will report earnings in early December.
The long bond position is taking some heat with the rate hike fears, but that’s why you’re short JNK on the other side of it. Deflation and increasing rate hike expectations are the nemesis of poor credit. As mentioned last week, it’s called spread risk, and this leverage is fueled by low rate policy.
Since the Fed turned hawkish, bonds are down, rates have risen, and deflation has re-commenced. Admittedly, long-term treasuries haven’t worked. TLT is down -2.0% over the last month; BUT, if you’ve followed us with our short JNK call, that’s down -3.4%.
Three for the Road
TWEET OF THE DAY
NEW VIDEO Chipotle Will Lose in Court of Public Opinion https://app.hedgeye.com/insights/47682-penney-chipotle-will-lose-in-the-court-of-public-opinion… via @HedgeyeHWP cc @KeithMcCullough @Hedgeye
QUOTE OF THE DAY
The man of wisdom is never of two minds; the man of benevolence never worries; the man of courage is never afraid.
STAT OF THE DAY
Oil (WTI) closed down another -1.2% week-over-week at -30.9% year-to-date and copper crashed another -6.1% last week, taking its 2015 #Deflation to -27.8% year-to-date.