It’s All About Central Planning

Client Talking Points

EURO

The Euro was down another -0.5% last week (-12.4% year-to-date vs USD) and down again this morning as the USD Index ramps > 100. Commodity markets don’t like this at all as the CRB Index remains in crash mode, -20.1% year-to-date.

EMERGING MARKETS

As long as you only look at the Nasdaq, everything is fine – EM and LATAM stocks deflated another -0.6% and -2.4% respectively last week and EM Asia (Indonesia -2.5% overnight) isn’t responding well to #StrongDollar either.

YIELDS

A super spike in the short-end (2YR = 0.95%) continues to flatten the curve (10YR minus 2YR testing year-to-date lows at 128 basis points wide this morning) – so the Fed can tighten into a slow-down and perpetuate the late cycle slow-down by doing so.

 

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

Asset Allocation

CASH 67% US EQUITIES 3%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
MCD

We added McDonald's to Investing Ideas on August 11th. Since then shares of McDonald's have risen over 16% compared to a 0.2% return for the S&P 500.

 

As Restaurants Sector Head Howard Penney wrote right around the time we added McDonald's (MCD), "We continue to get more bullish every time we talk to the company, franchisees and/or customers which we have polled via conducting surveys. We are going to be looking at a much different company 1-3 years from now. Urgency has been instilled from the top down by new CEO Steve Easterbrook," according to Penney. "This ship is in gear and headed north. 2015 will be the last time this stock is below $100."

RH

We believe that RH is to Home Furnishings what Ralph Lauren is to Apparel and what Nike is to Athletic Shoes. That’s a meaningful statement given that RH has only 3% share of a $140 billion relevant market.

 

RH is the preeminent brand in the space. We think that RH is in second inning of a game that may ultimately prove to be a double header. We believe the company will add $3 billion in sales over 3-years and climb to $11 in EPS. The earnings growth and cash flow characteristics to get to that kind of number would support a 30+ multiple. In the end, we see a stock in excess of $300.

TLT

The consumption side of the economy is arguably the most important, as its 69% of U.S. GDP. From a rate-of-change perspective, consumption growth decelerated in October, and consumer confidence is waning along-side it. That's why we would like to reiterate our Growth Slowing=Long TLT call.

 

To be clear, the consumption side of the economy had been a point of strength over the last several months. We’re not calling for a crash in household consumption, but the comps (comparison vs. prior reporting period) are important in rate-of-change analysis. The next four quarters of comps for Real PCE growth are the most difficult since Q3 2008 while the next four quarters of comps for CPI are the easiest since the four quarters ended in 4Q11. Simply put, both are headwinds for the consumer and we expect that the consumption component of the economic equation will continue to decelerate.

Three for the Road

TWEET OF THE DAY

What QE Actually Did Was Pay The Few And Crush The Many https://app.hedgeye.com/insights/47754-what-qe-actually-did-was-pay-the-few-and-crush-the-many… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Learning without thought is labor lost; thought without learning is perilous.

Confucius

STAT OF THE DAY

There are about 1,100 regional malls and 7,100 shopping centers in the U.S., which combined account for $5.3 trillion annually, $2.5 trillion in discretionary spending -- nearly $300 billion of that falls in the month of December alone.


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