Welcome to June

Client Talking Points

GERMANY

Germany unfortunately had to continue to report Q2 data this morning and it continues to slow with German PMI for May down to 51.1 from 5.14. The DAX and the 10YR Bund Yield are down on that after both were down last week as well (DAX was -3.4% on the week lagging all major equity markets).

USD

Down Euro equals Up U.S. Dollar – that’s been the story for going on 3 weeks now and the EUR/USD is -0.9% this morning to $1.08 pressuring Oil, Gold, etc. – especially from $1.07. We wouldn’t be surprised to see this all reverse on a bearish U.S. jobs report on Friday. 

INDUSTRIALS

Governments might try to change how GDP is calculated, but the companies slowing with A) #StrongDollar and B) #LateCycle reflect the economic data. Industrials (XLI) were the worst place to be in U.S. Equities last week, down -1.9% to -1.4% year-to-date.

Asset Allocation

CASH 47% US EQUITIES 4%
INTL EQUITIES 10% COMMODITIES 13%
FIXED INCOME 23% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
PENN

We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility. PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016. Both properties should well exceed current Street estimates for win per slot and EBITDA. PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.

ITB

Housing went 3 for 3 as the Trinity of Fundamental Data Points released in the latest week continued to reflect accelerating rates of improvement across both the New and Existing markets. New Home Sales in April rose +6.8% month-over-month to +517K.  More notably, sales were up a remarkable 26% on a year-over-year basis as NHS re-converged back to the trend in New Home construction. Pending Home Sales rose +3.4% sequentially in April, accelerating to +14% year-over-year with the Index making a new 101-month high.  Pending Home Sales represent signed contract activity and are a historically strong lead indicator of Existing Home Sales.  The MBA’s weekly Mortgage Purchase Application Index re-captured the 200-level, rising +1.2% week-over-week and accelerating +250bps sequentially to +13.1% year-over-year.  

TLT

We believe the U.S. economy is past peak in rate-of-change terms and sliding down the slope to an eventual cliff (i.e. recession). That’s our call and we’re sticking to it. Friday’s negative revision takes our full-year estimate for real GDP growth down to +2% (from +2.3% prior). Both the Fed and Street are up at +2.5%, both of which continue to careen down from perpetual expectations of rainbows-and-puppy dogs (i.e. 3-plus percent growth) earlier this year. We reiterate our call to be long of long-duration in its many forms:  TLT, VNQ, EDV, and GLD (gold has historically performed well in down-dollar and down-interest rate environments and we think the June 17th FOMC statement has a high probability of being dovish and dollar-bearish).

Three for the Road

TWEET OF THE DAY

VIDEO: Companies "Moronic" About Stock Buybacks https://app.hedgeye.com/insights/44374-mccullough-companies-moronic-about-stock-buybacks… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution.

Albert Einstein

STAT OF THE DAY

The Architectural Billing Index fell below 50 in April, a negative indication for activity in early 2016.  The index can be noisy on a sequential basis, but the readings have been decelerating since late 2014.

 

The Macro Show - CLICK HERE to watch today's edition at 8:30am ET.