Dollar Down, Rates Up?

Client Talking Points

YIELDS

Dollar Down, Rates Up? That is, unless we accept that the only real up moves in U.S. Yields have been prefaced by meltups/scares in European Yields – that happened again, big time, yesterday, with German 10YR going from 0.49% to 0.71%, in a day! The U.S. 10YR has taken those long-term lower-highs and fallen in the face of slowing U.S. economic data – so get ready for that jobs report Friday.

EURO

We’ll see if a whopping 0.3% year-over-year Eurozone “inflation” gets ECB President Mario Draghi to let Bond Yields spike and the Euro to go to $1.15 vs USD this morning, but the signal says I doubt it. The immediate term risk range for the EUR/USD is now 1.08-1.12 and we expect that to hold, for now. 

OIL

Oil loves the Down Dollar part of the equation, so at least we got upping our asset allocation to Commodities right; Oil tapped the top end of our $58.68-61.90 risk range on a big Down Dollar day yesterday, then backed off as the EUR/USD failed at $1.12.

Asset Allocation

CASH 46% US EQUITIES 6%
INTL EQUITIES 10% COMMODITIES 12%
FIXED INCOME 24% INTL CURRENCIES 2%

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

KOSPI down again, -0.7% (down -3% in the last month); India down another -1.2% #GrowthSlowing globally

@KeithMcCullough

QUOTE OF THE DAY

When hungry, eat your rice; when tired, close your eyes. Fools may laugh at me, but wise men will know what I mean.

Lin-Chi

STAT OF THE DAY

According to a  new New York Times-CBS national poll, 84% of people – 80% of Republicans and 90% of Democrats -- believe money has too much influence in American politics.



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