Client Talking Points
Total U.S. Equity Market Volume (including dark pool) is down -16% and -18% vs. their 1-month and 1-year averages on yesterday’s +1% SPY day. The Liquidity Trap in small caps (and Russell) remains obvious, looking nothing like the headline level of the S&P 500.
Oil experienced a textbook crash, bounce, fade move in what so many pundits have hoped for in 2015 – we think they call (ed) it “reflation” – but #Deflation is still winning with WTI down -2.3% (Russia -1.5%) after failing at the top end of the $34.83-38.29 risk range.
The probability of a recession continues to rise as we head into 2016. The Yield Spread (10YR minus 2YR) just flattened to a year-to-date low of 121 basis points and its rarely seen this level during the Bernanke/Yellen regime. If they (Fed) keep tightening into the slow-down, they’ll perpetuate it.
*Tune into The Macro Show at 9:00AM ET - CLICK HERE.
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Top Long Ideas
Federated Investors (FII) profitability got a boost as the Fed boosted short term rates for the first time in 7 years. Even the slight 25 basis point hike improves profitability in the firm’s leading money fund business by +30% into the New Year.
In essence, the firm rolls 30-day paper throughout the short term fixed income curves and the new higher yields forthcoming into 2016 will allow the company to claw back some of the waived fees it has extended to its client base in money funds. Year-to-date the company has waived over $300 million in fees. With that firmly in the rearview, it becomes an opportunity set as FII gets higher yield from cash products next year.
In the financial sector, FII is the most asset sensitive name we cover, meaning it benefits most from even marginal interest rate hikes.
We have to give Restoration Hardware Chairman and CEO Gary Friedman props for his approximately nine minute segment on Cramer 2 weeks. Let's face it, him going on what's arguably the most volatile and biased financial media platform, unscripted, is not what we wanted to see. The risk of fireworks was high.
But he capped off a successful day RH (CFO and IR) had on the investor conference circuit by focusing on the real value drivers at Restoration Hardware (RH) -- growth in product concepts, and RH's real estate transformation. The appearance was planned well before the earnings release, by the way, coinciding with a business-focused trip to NYC. All-in, it was a positive event for the stock.
In case you were looking for Style Factors that crushed it last week – the Top 3 gainers were the Top 3 #Deflations of 2015!
In other words, the no-volume squeeze had the smaller cap Russell 2000 outperform the large cap Dow at +3.0% week-over-week vs. 2.5%. Heading into the final week of the year, the Dow and Russell are down -1.5% and -4.1%, respectively.
In a slower-for-longer secular growth world, you should pay more for the organic growth that you can find. But, more importantly, you should realize that “cheap” has the illusion of “cheap” because the U.S. economic cycle is slowing alongside the secular.
Three for the Road
TWEET OF THE DAY
Darius Dale: This Is the 'Biggest Risk Heading Into 2016’
QUOTE OF THE DAY
If you lose an hour in the morning, you have to hunt for it the rest of the day.
STAT OF THE DAY
The 20 retail companies in the Fortune 500 recognize an average of $6,300 in annual profit per employee. The minimum wage decisions being discussed at WMT would take annual profit per employee down by 38% for a hike to $9 and 71% for a hike to $10.10.