PMIs, USD and the UST 10YR

Client Talking Points


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.


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.


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


Top Long Ideas

Company Ticker Sector Duration

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."


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.


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


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



Thoughts rule the world.

Ralph Waldo Emerson


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.

Cartoon of the Day: Blast Off!

Cartoon of the Day: Blast Off! - Rate hike cartoon 11.30.2015


"Janet Yellen would be first Fed Head in modern times to raise interest rates into recessionary data," wrote Hedgeye CEO Keith McCullough earlier today.

The Best Deal Hedgeye Has Ever Offered (Today Only)



The Best Deal Hedgeye Has Ever Offered (Today Only) - best deal


Many of Wall Street's most successful money managers already rely on Hedgeye Risk Management’s team of over 30 analysts to help them navigate these turbulent markets.


While we can’t name names, our list of institutional subscribers is a veritable “Who’s Who” of leading investors across the globe. (We don’t write that to impress you, but rather, to impress upon you just how ridiculously good this particular deal is.) We work extraordinarily hard and are unafraid to make big, non-consensus calls. More often than not … we’re right. There’s a very good reason our business is up +35% year-over-year.


Find out for yourself why our independent, conflict-free, financial research firm is the fastest-growing company of its kind in America.



Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT

Takeaway: We're net sellers of Retail.

We'll leave all the Black Friday chest-thumping and cherry-picking to Wall Street and the mainstream media. The outlook for the Retail sector isn't pretty.

Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - Retail cartoon 12.01.2014


Below is an excerpt from a detailed research note written by Hedgeye Retail analyst Brian McGough sent to institutional subscribers earlier this morning:


"... We’re happy to get into the debate about how crowded the parking lot was at the mall this weekend, but it’s nowhere near as relevant as the current profitability growth trajectory for Retail, and the consensus expectations for the group as we head into 2016.


The good news is that 4Q [consensus] sales estimates look only slightly high. The bad news is that margins expectations are still 50-100bps high for the group. The worse news is that the Street’s numbers are banking on a recovery in growth and margin starting in 1Q16. In other words, it’s chalking up this ‘thing’ retailers are feeling now as exactly what management teams want us all to believe – while they cross their fingers, hope and pray that the economy is not really slowing.


The group might be viewed as damaged goods in this market, but keep in mind that it’s only down 4.3% for the YTD vs a 1.5% gain for the market – not a big difference. It’s trading at 18-19x earnings, and has short interest that is disproportionately low for an economy that is #LateCycle. We’re net sellers of Retail."


To be clear, McGough and his team currently have twelve short ideas and six longs.


Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - BF


If you were watching Thursday and Friday's morning business news, you probably noticed the non-stop coverage of Black Friday sales. For the record, McGough puts this comparatively modest post-Thanksgiving shopping into perspective:


"... I think most of us would agree that basing one’s view on a small handful of stores is a pretty useless exercise given that there are about 1,100 regional malls and 7,100 shopping centers in the US, 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." 


Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - XRT


Forget about Wall Street's Black Friday storytelling. It's almost immaterial in the grand scheme of things.


Moreover, watch out over the next few quarters. The U.S. economy IS slowing. As this evolves, a clear, yet underappreciated, trend is developing among Retail stocks...


And it's Down, Down, Down. 



Editor's Note: To access McGough's Retail sector research email

McGough: Retail Looks Risky, But If I Had to Own Two Stocks…| $XRT


In this brief excerpt of The Macro Show this morning, Hedgeye Retail analyst Brian McGough discusses underappreciated risks lurking in retail right now. He also answers a subscriber’s question about which stocks he would own despite his current apprehension of the sector. 


Subscribe to The Macro Show today for access to this and all other episodes. 


Subscribe to Hedgeye on YouTube for all of our free video content.

INSTANT INSIGHT: Strong Dollar Will Keep Fed Guessing

Takeaway: The dollar's strength continues to crush commodities.

INSTANT INSIGHT: Strong Dollar Will Keep Fed Guessing  - strong dollar


"The Euro was down another -0.5% last week (-12.4% YTD vs USD) and down again this morning as the USD Index ramps above 100," writes Hedgeye CEO Keith McCullough in a note to subscribers this morning. "Commodity markets don’t like this at all. The CRB Index remains in crash mode down -20.1% YTD."


Take a look at the ramp up in the U.S. dollar index since mid October.


INSTANT INSIGHT: Strong Dollar Will Keep Fed Guessing  - usd2


As McCullough notes, the CRB index is getting crushed by the strong dollar move.


INSTANT INSIGHT: Strong Dollar Will Keep Fed Guessing  - crb2


That's important.


By the time we get to Fed head Janet Yellen’s testimony in front of the “Joint Economic Committee” (JEC) in Washington on Thursday, more #StrongDollar Deflation will still have our esteemed authorities guessing.

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.