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Don't Blame China

Client Talking Points

JOBS

Thinking like consensus does is the biggest risk, but they will stare at the absolute number this morning instead of the rate-of-change; don’t forget that the U.S. employment cycle peak was a NFP growth rate of 2.3% in Q1 of 2015 – it’s also the latest of late cycle indicators (put another way, there’s nothing this number can be to change our bearish TREND view).

 

VOLATILITY

We remain bullish on this breakout in volatility (new range = 18-26) – if all the Chinese could do having the government buy stocks overnight is get a +0.6% bounce in Hong Kong, London, and Germany, that’s not what stock market bulls need here. We believe the bulls are sellers on rallies for the 1st time – hedge funds have to get a lot shorter too; performance out there is bad.

S&P 500

The U.S. stock market has never NOT crashed (20% or more decline from peak – that would get you 1704 SPX from the 2130 #bubble high) when corporate profits go negative for 2 consecutive quarters – we’ll have that in earnings season that starts next week – JPM’s earnings are way more important to me than this jobs report.

 

*Tune into The Macro Show at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 68% US EQUITIES 2%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 20% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
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 
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).

Three for the Road

TWEET OF THE DAY

LIVE Healthcare Q&A Friday @ 11AM - A Special Jobs Report Edition & Best Ideas Recap https://app.hedgeye.com/insights/48445-live-healthcare-q-a-friday-11am-a-special-jobs-report-edition-be… via @hedgeye

@HedgeyeHIT

QUOTE OF THE DAY

Keep steadily before you the fact that all true success depends at last upon yourself.

Theodore T. Hunger

STAT OF THE DAY

Star Wars: The Force Awakens is now the highest-grossing film ever in North America, pulling in $758.2 million and beating out Avatar.