Client Talking Points
We think ECB President Mario Draghi made his 1st big mistake yesterday in classifying economic growth the way he did (sequentially most European growth data has been slowing) and basically saying #deflation isn’t a risk anymore. The German DAX is down -1.5% this morning and down -3.1% in the last month.
German Yields have almost doubled (not a typo) in the last 3 days – that’s normal! Swiss Yields have gone from negative to positive +0.04% and all this matters if only because markets weren’t ready for it. Probably the best buying opportunity in long-term U.S. Treasuries in a year, especially if the jobs report is bad tomorrow (35-40 basis points of daily downside in the UST 10YR).
Blue Horseshoe “Golden Sun Securities” under siege as the sketchy-ness of it all ramps. The Shanghai Composite Index dropped 5% intraday, then experienced a straight up ramp into the close that put it +0.8% on the day = +144% in the last year.
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Top Long Ideas
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.
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.
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
We've got an Idea Vetting Book on $RL coming down the pike on Mon to drill down the battleground issues.
QUOTE OF THE DAY
The empires of the future are empires of the mind.
STAT OF THE DAY
MBA Purchase Activity was mixed as demand declined -3.0% sequentially but accelerated from +13.1% to +13.9% on a year-over-year basis.
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