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Client Talking Points

PMIs

On the heels of a recessionary PMI of 48.7 in the U.S. yesterday, China goes with making up a 49.6 in NOV (vs. 49.8 OCT). German/French PMIs are flat sequentially at 52.9 and 50.6, respectively – Swiss PMI drops below 50 to 49.7 – UK PMI slowed from 55.5 to 52.7 – Japan 52.6 vs 52.4.

USD

Dollar Down, Rates Down post the 4-handle on the PMI yesterday, so we get another “reflation” bounce this morning in Commodities (Copper +1%) and EM (Indonesian Stocks +2.5%) – don’t confuse these bounces with accelerating “demand” – that’s just silly.

UST 10YR

If this picture doesn’t tell a thousand tweets, I don’t know what does. The immediate-term risk range for the UST 10YR is 2.18 to 2.28%. 

 

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

Asset Allocation

CASH 68% US EQUITIES 4%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 16% 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

"#Yellen to be first #Fed Head in modern times to raise interest #rates into recessionary data." -@KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

Thoughts rule the world.

Ralph Waldo Emerson

STAT OF THE DAY

The total amount of tree production acreage in the U.S. decreased by about 31% from 2002 to 2012, and the number of operations with Christmas tree sales has decreased from about 14,700 to 13,000 in the same period, according to the USDA.