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Client Talking Points

USD

While there have been plenty of “reflation” and relief rallies across asset classes throughout 2015, the #1 thing to have stayed with from a TREND perspective is #StrongDollar and its deflationary force on bubbled up asset classes. What the Fed did (and maintained) in their dead-wrong growth forecast was keep a USD super spike > $100 on the USD Index in play.

#DEFLATION

Interestingly, but not surprisingly, that’s exactly how the macro market read the Fed’s hawkish statement – dovishly on growth! The CRB Index hit a fresh new low on the “news”, Oil (and its related equities) continued to crash, and Credit Spread risk didn’t change from a bearish TREND perspective either. Copper and Oil are down another   -1% each this morning.

UST 10YR

We thought they “raised rates”? This is what we mean by the market read-through being dovish on growth – UST 10YR is down -7 basis points this morning, Yield Spread (10s minus 2s) testing its year-to-date low at +123 basis points, and Utilities (XLU) led the relief rally +2.5% on the day!

 

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

Asset Allocation

CASH 67% US EQUITIES 2%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 15% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
MCD

MCD remains one of our top LONG ideas in the restaurants space. All indications are that all day breakfast is working, bringing back old customers and driving growth of new customers. Customers are pairing both breakfast and lunch items together in the lunch and dinner day, part which is helping drive additional sales.

 

McDonald’s Canada opened its first standalone McCafe this month. The much simplified concept intends to appeal to customers by offering both speed of service and low cost. They intend to be faster than their main competitor Tim Hortons and cheaper than Starbucks, carving out their own niche in the market.

RH

This RH quarter is going to draw a Mason Dixon line between the Bulls and the Bears. The key factors that the Bulls (including us) need to see were profoundly present – giving us confidence that revenue will double, that we’ll see a 16% operating margin, and $11 in earnings power. In addition, RH beat the quarter, delivered 33% EPS growth in what should be the slowest growth quarter of the year, and it took up 4Q revenue guidance based on what it’s seeing so far this quarter (to 20%+).

 

The Bears got a nice little gift in the form of weaker Gross Margins due to promotional activity, and renewed concerns about management. The reality is that this is a transformational growth story that will change on the margin more often than it doesn’t. Based on our confidence in the earnings power at play here, we’d use any weakness as an opportunity to buy.

TLT

Implicit in our long TLT/short JNK bias is an expectation for high-yield spreads to continue along their recent trend of widening throughout the YTD.

 

“The U.S. economy is #LateCycle and the probability of a recession commencing by mid-2016 is extremely elevated – both in absolute terms and relative to the belief held by the overwhelming majority of investors and policymakers. Moreover, the risk of a global recession is also great in this scenario.”

 

The economic cycle doing what it always does (i.e. decelerate into a recession before bottoming and then reaccelerating) is reason enough to be bullish on the long bond and bearish on junk bonds, which are accelerating into full-blown crisis mode (the JNK ETF declined another -2% on Friday and is down -4.1% WoW, -5.8% MoM and -12.7% YTD).

Three for the Road

TWEET OF THE DAY

REPLAY | Fed Day Live with Hedgeye CEO Keith McCullough https://app.hedgeye.com/insights/48087-fed-day-live-with-hedgeye-ceo-keith-mccullough-wednesday-at-2-10pm-et… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Time and tide wait for no man.

Geoffrey Chaucer

STAT OF THE DAY

A new study found that heads of state lived 2.7 fewer years than the opponents they beat.