Client Talking Points
In other news...consensus will try to ignore into year-end comp. The Atlanta Fed cut its GDP forecast closer to Hedgeye’s yesterday, taking Q4 to 1.4% - reminder that Q4 will be the slowest year-over-year growth rate of 2015 (half of where it was at the cycle peak) #GrowthSlowing.
If the Fed was data “dependent”, they’d follow what the Bond market did yesterday. But we doubt they will – the Federal Reserve hasn’t raised rates with the ISM < 50 in 2 decades, FYI – you go Janet, you go!
Smack down day for rates (post back to back 48s on PMI and ISM reports) taking the UST 10YR to 2.16% and compressing the Yield Spread to year-to-date lows of +124 basis points – as you can see in this chart, long-term risk managers have had economic gravity right #GrowthSlowing.
*Tune into The Macro Show with Macro analyst Darius Dale and Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE.
|FIXED INCOME||15%||INTL CURRENCIES||8%|
Top Long Ideas
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
TWEET OF THE DAY
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QUOTE OF THE DAY
Thinking is the hardest work there is, which is the probably reason why so few people engage in it.
STAT OF THE DAY
The U.S. ISM Headline figure dropped sub-50 for 1st time since November 2012 to 48.6. New Orders also slide below the expansion line to 48.9.