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Uglier, Faster

Client Talking Points

RATES

The UST 10YR Yield has backed off @Hedgeye TREND resistance (again) -4 basis points to 2.36% with no immediate-term support to 2.03% now into the Fed meeting on June 17th – Slower-For-Longer (both U.S. and Global Growth) remains our call – U.S. Labor data is #LateCycle.


TRANSPORTS

We guess this time is “different” with the Transports not being a leading indicator for the cycle too? Leading losers from a Sector Style perspective yesterday, IYT was down -2.1% on the day and is now -4.9% month-over-month and down -8.7% year-to-date.

EQUITIES

Globally equities look worse than the Transports! And we know one of our competitors is saying “growth is back”, but seriously – month-over-month Global Equity moves = Russia -12%, Portugal -9%, Greece -8%, Germany -7%, Brazil -7%, Turkey -7%... we’ll stop there.

 

Asset Allocation

CASH 46% US EQUITIES 4%
INTL EQUITIES 10% COMMODITIES 12%
FIXED INCOME 28% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
PENN

Penn National Gaming is a true growth story in regional gaming, finally, ripe with catalysts, same store and new unit growth, and accelerating cash flow.  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. 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

The takeaway on Purchase Activity was mixed as demand declined -3.0% sequentially but accelerated from +13.1% to +13.9% on a year-over-year basis.  More broadly, and inclusive of the latest week, purchase demand in 2Q continues to reflect both sequential and year-over-year improvement with demand growth for the quarter currently tracking +13.6% QoQ and +12.8% YoY. No major callouts in the latest week as the larger trend towards ongoing improvement in purchase activity in 2Q remains intact. 

CLICK HERE to watch Housing Sector Head Josh Steiner gives a brief update on our call on ITB.

TLT

Considering we are already well passed an above average length expansion, and moving into the second half of 2015 growth and inflation comps (i.e. the base effects) become very difficult, growth is likely to continue to slow. We put the likelihood of a rate hike in 2015 as highly unlikely and continue to expect rates to move to make a series of lower-highs through the balance the year (bullish for EDV, TLT, and VNQ. When forward looking growth expectations are downwardly revised and the Fed kicks the can on rate hike expectations, rates and the dollar move lower. Gold has historically performed well in an environment of falling rates and a declining U.S. dollar and we don’t expect anything different this time around. Supporting our view, both gold (GLD) and treasuries (TLT, EDV) remain BULLISH on an intermediate-term TREND duration (3-months or more).   

Three for the Road

TWEET OF THE DAY

Chinese CPI slows to 1.2% y/y (from 1.3%) as producer prices continue to #deflate -4.6% y/y

@KeithMcCullough

QUOTE OF THE DAY

Big thinking precedes great achievement.

Wilferd Peterson

STAT OF THE DAY

32 million people get summoned each year for jury service in U.S. state courts.

 

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


Dollar vs. Inflation

This note was originally published at 8am on May 26, 2015 for Hedgeye subscribers.

“I started to establish the present and the present moved on.”

-Wallace Stegner

 

I love spending long weekends with my family. I hope you had a great one with yours. Welcome back.

 

This weekend I took some time to review what I’ve organized as the un-read section of my library and I found a book that I’ve been wanting to read for a long time – Wallace Stegner’s 1972 Pulitzer Prize Winner, Angle of Repose.

 

In some ways I find Stegner to be like Hemingway. He’s of the same era; he writes from a historian’s perspective; and he keeps his short stories within a story concise and to the point. These are all writing attributes I aspire to achieve someday. Until then, I evolve.

 

Back to the Global Macro Grind

 

When considering the non-linearity of Global Macro markets, isn’t Stegner’s aforementioned quote the truth? Just as Bloomberg writes a headline about FX “volatility expected to reverse direction”, it breaks out this morning. Again, welcome back.

 

Before I get into the #behavioral side of this foreign currency move (Japanese Yen -1.1% this a.m. to fresh YTD lows), it’s always critical to review the #history of market moves, so that we can attempt to establish context:

 

  1. In “front-loading” QE, Eurocrats devalued the Euro by -3.8% last week, taking it down -9% vs USD YTD
  2. After 6 weeks of pervasive weakness, the US Dollar Index spiked on that, closing the week +3.1% at +6.4% YTD
  3. The Japanese Yen, which had been doing nothing for months, finally broke down, dropping -1.8% on the week

Dollar vs. Inflation - burning euro cartoon 05.01.2015 normal 

That’s why another drop in the Yen this morning matters. Not only did it break immediate-term TRADE support last week, fortifying our long-term bearish TAIL risk view, but now it’s testing a break-down to lower-lows, -2.5% YTD.

 

Now, since I’m bearish on the US Dollar into this week’s GDP report (Friday) and next week’s jobs report for June (then the Fed meeting on June 17th), these Euro and Yen moves are going to present opportunities on the long side of commodities.

 

If you didn’t know that the USD impacts commodity #deflations and reflations (or whatever consensus is whining about right now on “inflation” coming back at sub $60 Oil and 1.68% 5yr US break-evens), now you know.

 

With USD having a -0.90 inverse correlation to the CRB Index (30-day duration) here’s what everything Commodities did last week:

 

  1. CRB Commodities Index -2.5% = -1.9% YTD
  2. Oil (WTI) -1.4% to $59.72 = +6.2% YTD
  3. Gold -1.7% to $1204 = +1.6% YTD
  4. Copper -3.9% to $2.81 = -0.5%
  5. Energy Stocks (XLE) -0.6% = +1.3% YTD

 

Contextualized this way, the present (being YTD) is less than 6 months old. If you pull back your time-series #history to 1 year, obviously most of these “inflation” barometers have plummeted.

 

Five year breakevens is a fair way to consider inflation expectations, and while it’s true that those are +11 basis points for the current quarter, they are -32 basis points year-over-year. Newsflash: the Fed is not going to “raise rates” on that.

 

Longer-term, what does the world want – a stronger or weaker Dollar?

 

  1. If you’re a European stock market bull, you want #StrongDollar, Burning Euro
  2. If you’re an Emerging Markets bull, you want #WeakDollar, Recovering EM Currencies
  3. If you’re a non-Wall St American, you want a #StrongDollar, Rising Purchasing Power

 

That’s what macro markets reminded you of on last week’s #StrongDollar move:

 

  1. European Stocks (EuroStoxx 600 and German DAX) +2.8% and +3.2% to +19% and +20.5% YTD, respectively
  2. EM Latin American Stocks (MSCI Index) -5.5%  to -4.2% YTD
  3. Russell 2000 +0.7% to +3.9% YTD with the almighty Dow DOWN -0.2% on the week

 

Yep, the Russell is basically a US domestic revenue index whereas both the Dow and SP500 are increasingly proxies for international earnings. That’s why the Russell rocks during #StrongDollar periods (see our 2013 US #GrowthAccelerating theme for details).

 

That’s also why the US Sector Style  (equities) outperformance last week was very much what it was prior to the recent US Dollar correction. US Consumer Discretionary (XLY) loves #StrongDollar whereas the global Industrials (XLI) loathe it.

 

Love it or loathe it, US Dollar #history has been established. And it’s my job to write about its policy risks for both the short and long-term. While it’s true that, in the long-run, Keynes is right (we’ll all be “dead”), the present moves on.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.97-2.24%

SPX 2108-2144
RUT 1233-1267
Nikkei 19931-20592
USD 94.51-96.85
EUR/USD 1.09-1.15
YEN 120.32-123.04
Oil (WTI) 57.31-61.68

Gold 1190-1230

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

***Click here to watch The Macro Show live at 8:30am.

Dollar vs. Inflation - 5Y BE CoD


The Macro Show Replay | June 9, 2015

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

June 9, 2015

June 9, 2015 - Slide1

 

BULLISH TRENDS

June 9, 2015 - Slide2

June 9, 2015 - Slide3

June 9, 2015 - Slide4

June 9, 2015 - Slide5

 

 

BEARISH TRENDS

June 9, 2015 - Slide6

June 9, 2015 - Slide7

June 9, 2015 - Slide8

June 9, 2015 - Slide9

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June 9, 2015 - Slide11


This Could Be "The Best Deal Retail Has Ever Seen" | $RL

 

Hedgeye's Retail Team held a Ralph Lauren Idea Vetting Book call today exclusively for institutional subscribers. In this brief excerpt Retail Sector Head Brian McGough explains why Ralph Lauren purchasing Tory Burch could be the best deal retail has ever seen.


REPLAY: Healthcare Q&A [Jobs Report Implications & OB/GYN Survey Results] $HCA $HOLX $MD $WOOF

This is a must-see video if you're an investor in the Healthcare space.


Hedgeye Healthcare Sector Head Tom Tobin and Analyst Andrew Freedman hosted a live Q&A session earlier today.

 

They discussed key takeaways from Friday's jobs report and results from our monthly OB/GYN survey. The team also provided brief updates to HCA, HOLX, MD, WOOF, XRAY and ZMH.

 

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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