CLIENT TALKING POINTS
#DEFLATION
Largely misunderstood for the last 18 months, we’ve entered the most painful part of a crash in inflation expectations – the capitulation. The CRB Index made lower-lows down -23% year-to-date yesterday and Oil and Copper have only bounced +0.7% and +0.2%, respectively this morning – this all but ensures the “bottom” in leading indicators is not in.
RUSSELL 2000
The Russell 2000 moved back into double-digit correction mode yesterday (-10.1% since July’s all-time #Bubble high) as small cap, leverage, and high beta continue to be some of the worst Style Factors to be long during a #LateCycle slow-down that’s driven by #Deflation expectations.
UST 10YR
From Atlanta Fed’s Lockhart’s lips to whoever doesn’t do macro’s ears, after cutting his GDP forecast for Q4 to 1.4% he said the “market” is well prepared for a hike. He clearly wasn’t talking about credit, commodity, currency, EM, small cap, etc. markets. The UST 10YR Yield is right back down to 2.22% as the curve continues to flatten (129 basis points 10YR minus 2YR this morning).
*Tune into The Macro Show with Hedgeye CEO Keith McCullough in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
MCD
Restaurants Sector Head Howard Penney had no material update on McDonald's (MCD) this week. However, here is what Penney wrote around when we added MCD to Investing Ideas. It's worth reiterating our high conviction in the stock:
"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
A lot has happened in 13 weeks... not the least of which is that Restoration Hardware (RH) is underperforming not only the market by 16%, but Retail as well (by 7%) – despite RH being more insulated from some of the issues that are clipping earnings today for retailers more broadly.
Over this time period, however, RH meaningfully accelerated square footage growth, launched two new concepts. Some say it’s bad timing. We disagree. RH is our favorite name in the retail space, and we like it across all three durations. Trade, Trend, and Tail.
TLT
On went the game of slowing last week with a little central planning un-secretive sauce. Despite the ECB’s move to cut the deposit rate to -0.30%, Draghi didn’t ring the cowbell loud enough. Meanwhile, Friday’s jobs report might have been just enough for Janet to hike rates into a late cycle slowdown. The consensus long USD crowd was crushed on the ECB news. The dollar lost over 2% on Thursday and rates were pushed higher.
If growth is going to continue to slow, with a rate hike on the horizon, a relative fixed income spread play (long TLT, short JNK) is exactly what you want on.
Asset Allocation
| CASH | 68% | US EQUITIES | 3% | |
| INTL EQUITIES | 7% | COMMODITIES | 0% | |
| FIXED INCOME | 15% | INTL CURRENCIES | 7% |
THREE FOR THE ROAD
TWEET OF THE DAY
VIDEO: ‘The Stock Market Looks Fantastic! (Ex-Energy, Ex-Consumers And Ex-Credit)’ https://app.hedgeye.com/insights/47945-mccullough-the-stock-market-looks-fantastic-ex-energy-ex-consumer?type=video… via @hedgeye
@KeithMcCullough
QUOTE OF THE DAY
The wise man should be prepared for everything that does not lie within his control.
Pythagoras
STAT OF THE DAY
A study of 15-year-olds was conducted in 42 countries and found that after G.N.P., the quantity of books in one’s home was the most important predictor of reading performance. The greatest effect was seen in libraries of about 100 books, which resulted in approximately 1.5 extra years of grade-level reading performance.
