CLIENT TALKING POINTS
#RateHike Expectations
Expectations play-out every day in markets. The consensus expectation was a short commodity long USD view moving into this week (Euro-QE and a Fed funds rate cut). If and when that doesn’t happen, the currency move looks about like yesterday, a -2.2% move in the USD. With this morning’s uneventful jobs report, those expectations remain. USD consensus longs don’t capitulate on their long positioning in a day.
#Deflation’sDominoes
It’s a long road to the bottom. Low cost producers with endless reserves don’t volunteer to fight deflation. We don’t expect a bullish catalyst out of OPEC today with a production cut. Any catalyst to the end of a deflation trade looks policy driven at this point. If this morning’s NFP number was a go for Janet, the market will continue to deflate the fed-inflated commodity bubble.
EUR/USD
One day post Draghi Disappointment Day that sent the cross rocketing higher, it’s trading -0.50% to $1.0885. Over the more immediate term we’ll take our cues on the USD from U.S. data and Fed policy (meeting Dec. 15-16) and over the intermediate term we maintain a bearish bias as we think there’s an increased likelihood that the ECB has to act (as growth and inflation disappoint to the downside) by expanding the size of its QE program (to €75-95B/month), likely within the first quarter of 2016.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 69% | US EQUITIES | 3% | |
| INTL EQUITIES | 6% | COMMODITIES | 0% | |
| FIXED INCOME | 14% | INTL CURRENCIES | 8% |
THREE FOR THE ROAD
TWEET OF THE DAY
The US Stock market has only been up 6 days in the last 21 - it was oversold yesterday, that is all
@KeithMcCullough
QUOTE OF THE DAY
“Whoever said, ‘it’s not whether you win or lose that counts,’ probably lost."
-Martina Navratilova
STAT OF THE DAY
Wade Boggs had a career batting average of .328.
