Japan, Yields and Oil

Client Talking Points

JAPAN

Down Dollar (again) this morning gives you +0.9% YEN vs USD and an immediate-term TRADE oversold signal within what’s been a very bullish TREND for Japanese Stocks. The Nikkei remains our top International Equity idea here, buy more.

YIELDS

CEO Keith McCullough has spent the last few days in CA and very sophisticated cross asset class investors are all telling him the same thing about this Euro Yield move – it’s not about “growth expectations rising – it’s a liquidity/technical move” – Schwarzman has a decent editorial in the WSJ today on how this could perpetuate the next crisis.

OIL

Down Dollar, good for America, eh? Oil loving the USD weakness with another +2.3% ramp to the top-end of our immediate-term $58.64-61.75 immediate-term WTI risk range. We still like Down Dollar, Dovish (long Oil, Gold, etc.) into the Fed meeting next week.

Asset Allocation

CASH 41% US EQUITIES 6%
INTL EQUITIES 12% COMMODITIES 13%
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

China cuts its economic forecasts (again) - to be clear, that is the bull case for stocks

@KeithMcCullough

QUOTE OF THE DAY

Vision is the art of seeing the invisible.

Jonathan Swift

STAT OF THE DAY

The cost of a dozen liquid eggs (wholesale) has jumped from $0.63 to about $1.50 since April.

 

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