CLIENT TALKING POINTS
CHINA
The communists did everything they could to centrally plan China’s markets overnight – stopped the Yuan at 6.516 and the State bought stocks! LOL – that went over as well as it did in AUG didn’t it? #GrowthSlowing and #Deflation remain the gravity point.
RUSSELL 2000
Liquidity-traps and U.S. domestics slowing remain great reasons to be out of or underweight small caps. The RUT was down -2.3% yesterday (vs. SPX -1.5%) and is now down -14.4% from the all-time #Bubble high we called in July – reiterating sell on bounces.
YIELD SPREAD
There is a new 12 month low here for the 10/2s spread at 119 basis points – this is actually the flattest the curve has been post the last U.S. recession; back to back ISM reports < 50 will do that (last time that happened was 2009) #GrowthSlowing.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
FII
With the Fed's 25 basis point hike in interest rates, in the financial sector, FII stands to benefit most from even this marginal change.
In essence, Federated Investors (FII) has a stable business for what we think will be a volatile 2016. 2015 finished with slight positive inflows into the firm's main business line, money market or cash products. This is reminiscent of the start of cash builds in 1999 and 2006 ahead of the negative returns in risk assets in 2000 and 2007.
RH
RH is our top long idea in all of retail, and we view the recent weakness in the stock as a buying opportunity. All in we think the company will build to $5bn in sales at mid-teens operating margin which equates to $11 in earnings power. This growth and profitability comes from...
- ~30% Square footage growth with new full line design galleries.
- New businesses, like Modern and Teen, that can be easily layered over its low cost infrastructure.
- Leveraging occupancy from the "sweet heart" real estate deals the company is getting as a high end traffic driving tenant willing to take anchor size leases.
TLT
The yield spread (10Y’s -2Y’s) compressed to a 52-week low of 120 basis points last week. AGAIN, that’s a 52-week low in growth expectations right after “lift-off”. Into year-end, the bond market continues to price in what it has all year long: #Slower-and-lower-for-longer.
We continue to believe deflation will pressure the policy-fueled leverage embedded in junk and high yield bond markets. The cheap money, corporate credit boom inflated asset prices and it has more room to deflate. This deflationary run started in the second half of 2014, with the introduction of our #Deflation theme. Back then, was also the low in cross-asset volatility and the high in outstanding corporate credit (commodity producers chasing inflation expectations were the largest contributor).
Asset Allocation
| CASH | 68% | US EQUITIES | 2% | |
| INTL EQUITIES | 0% | COMMODITIES | 0% | |
| FIXED INCOME | 19% | INTL CURRENCIES | 11% |
THREE FOR THE ROAD
TWEET OF THE DAY
5 Must-See Clips Distilling Hedgeye's Best Ideas https://app.hedgeye.com/insights/48361-5-must-see-clips-distilling-hedgeye-s-best-ideas…
@KeithMcCullough
QUOTE OF THE DAY
Time is money.
Benjamin Franklin
STAT OF THE DAY
Yesterday was the sixth-worst start to a year since 1927 for the Standard & Poor’s 500 Index, which fell 1.5% to erase $289 billion in market value.