#LateCycle

Client Talking Points

CHINA

It’s so slow in China (in rate of change terms) right now that the nightly rumors on the next “stimuli” have accelerated to their fastest pace. The Shanghai Composite finally gives up -4.1% in a day, so that should have the levered long brokers thinking twice (for a day).

EURO

After tapping the top-end of our $1.06-1.13 refreshed risk range, the Euro has backed off (again) at lower-highs to $1.10 and European stocks love that! The Euro saw a big 2-day rally off oversold lows, but the question is can it hold now that European economic data is slowing sequentially? (UK Construction PMI 54.2 APR vs 57.8 last).

UST 10YR

After rallying to lower-highs in both DEC (2.27%) and MAR (2.25%) the UST 10YR has done it again (this time to 2.13%) and we can get you to where we started 2015 (2.17%) but what happens after that? Almost everyone we talk to is thinking better jobs report Friday – what if it’s worse? #LateCycle.

Asset Allocation

CASH 47% US EQUITIES 8%
INTL EQUITIES 10% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
ZOES

We view ZOES as a very strong long-term investment. Part of what we like about Zoe’s is its strong new unit economics.  Not only does Zoe’s have strong restaurant level margins, but also has best-in-class build out costs and cash-on-cash returns.  In addition, we believe Zoe’s new units are exceeding management’s targets, driven by higher than expected year three average unit volumes. While it may be difficult for some investors to swallow Zoe’s valuation, we believe it represents one of the best early stage restaurant growth chains trading on the public market.  

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. Builder performance was choppy in the latest week alongside beta volatility and investor attempts to square the net impact to housing from rising rates and ongoing improvement in housing fundamentals. As it stands currently, rates remain a tailwind to affordability relative to last year and would require a significant, expedited increase to have a material negative impact on housing activity in the immediate/intermediate term. Elsewhere across Housing Macro, the fundamental data continued to roll in strong.

TLT

Insomuch as the April Jobs Report may prove to be a bearish catalyst for Treasury bonds, slowing growth data over the next two quarters should prove decidedly bullish. Fighting buy-side consensus on the long side of Treasury bonds been a great call thus far so we’d be booking gains and taking down our gross exposure to this asset class on the next immediate-term pop. Ultimately, we think our #LowerForLonger theme prevails, but volatility is likely to pick up in the interim.

Three for the Road

TWEET OF THE DAY

LIVE | INTERACTIVE | SMART

The Macro Show, Live w/@KeithMcCullough at 8:30AM ET https://app.hedgeye.com/insights/43899-the-macro-show-live-with-keith-mccullough-at-8-30am-et… via @hedgeye

@Hedgeye

QUOTE OF THE DAY

Recognizing power in another does not diminish your own.

Joss Wheadon

STAT OF THE DAY

It costs the Department of Justice $6.5 billion annually to operate the federal prison system.


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