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Buy Everything?

Client Talking Points

USD

If you ask Doctor Dollar, Janet Yellen may very well do what we think she should do and stay “data dependent” with no timing on rates – that would = Down Dollar, Down Rates – Up almost Everything (much like our March 18th FOMC meeting call). We think both U.S. equity futures (yesterday), and Oil again today are front-running this scenario.

VIX

The VIX ramped right to the top-end of our range yesterday then backed off – there is no support to 12.75 on a potential buy everything ramp – sentiment is bearish (this morning’s II Bull/Bear Spread is at year-to-date lows and SPX NET SHORT positions (futures/options) are at year-to-date highs).

EUROPE

Sorry, you get #StrongerEuro on this – and the DAX, CAC (both -4% in the last month) no likey Down Dollar because it means up Euro – so we like long U.S. Equities still vs short EuroStoxx with the Slower-For-Longer (down rates) view, for now ….

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET featuring Macro Analysts Darius Dale and Ben Ryan. 

 

Asset Allocation

CASH 40% US EQUITIES 6%
INTL EQUITIES 12% COMMODITIES 13%
FIXED INCOME 27% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

Penn National Gaming will likely tee off on the bears with a strong Q2, upward 2015/2016 EPS revisions, and the start of a 2 year growth period. PENN’s stock has climbed 27% this year on stabilizing regional gaming revenues, transaction-fueled optimism (real estate) surrounding the regional gaming companies and proximity to the opening of the new Plainridge racino on June 24. So what will drive even more upside? More and better. We think regional gaming trends are even better than anticipated by the Street and Q2 earnings should be a solid beat even before Plainridge contributes.

ITB

Housing outperformed in the latest week alongside choppy price action in equities and further, extraordinary volatility in sovereign bond markets.  Fundamental data was light with weekly purchase applications data from the MBA the lone release of import for the industry.  The first, high-frequency update on purchase demand in June, however, was positive. Purchase demand rose +9.7% sequentially, taking the index to its strongest level in 2 years at reading of 214.3. On a year-over-year basis, growth accelerated for a  4th consecutive week to +14.6%. Inclusive of last weeks gain, demand in 2Q is tracking +14.3% QoQ and +13.4% YoY.

TLT

Housing outperformed in the latest week alongside choppy price action in equities and further, extraordinary volatility in sovereign bond markets.  Fundamental data was light with weekly purchase applications data from the MBA the lone release of import for the industry.  The first, high-frequency update on purchase demand in June, however, was positive. Purchase demand rose +9.7% sequentially, taking the index to its strongest level in 2 years at reading of 214.3. On a year-over-year basis, growth accelerated for a  4th consecutive week to +14.6%. Inclusive of last weeks gain, demand in 2Q is tracking +14.3% QoQ and +13.4% YoY.

Three for the Road

TWEET OF THE DAY

ASIA (ex-Shanghai): in the last mth, Hang Seng -6.4%, Singapore -4.8%, KOSPI -3.7%

#GrowthSlowing @HedgeyeDDale

@KeithMcCullough

QUOTE OF THE DAY

I would challenge you to a battle of wits, but I see you are unarmed.

William Shakespeare

STAT OF THE DAY

Retail sales this week according to the ICSC index were up only 1.9%, the lowest rate in 15 weeks.


Dollar Down, Rates Up?

This note was originally published at 8am on June 03, 2015 for Hedgeye subscribers.

“We live in time, and through it.”

-Wallace Stegner

 

That’s another great quote about life from a book I’m quite liking right now, Angle of Repose. For the record, there is no repose for me this morning. And I like it. There will be plenty of time to sleep, when I retire.

 

In the meantime, I’m getting on a plane to the heartland of America for a day of investor meetings. I’ll be outlining what I think is becoming more likely by both the day and economic data point – Slower-For-Longer, on both US and Global growth, that is…

 

The two core components of our Global Macro slide deck remain A) the cyclical call (USA in a #LateCycle slowdown) and B) the secular call (#Demographic slowing of core baby boomer consumption cohorts, in the US, Europe, Japan, and China).

Dollar Down, Rates Up? - Growth cartoon 05.19.2015

 

Back to the Global Macro Grind

 

Dollar Up, Rates Down? Yep. We lived through that yesterday. In terms of our positioning, some of that was good – some of it bad. It was a very immediate-term move, but here’s what it looked like:

 

  1. Dollar Down -1.5% on the day (biggest down day in a month)
  2. Euro (vs. USD) +2.1% to the top-end of my current $1.08-1.12 risk range
  3. Commodities (CRB) Index +1.1% on the “reflation” trade to 226
  4. Oil (and Oil & Gas stocks) up with XOP leading US equity sub-sector performers +1.8%
  5. German 10yr Yield ramped from 0.49% to 0.71%, in a day
  6. US 10yr Yield chased that and went from 2.12% to 2.28%, in a day

 

This, mostly on consensus headline chasing of “inflation is back”, after the Eurozone posted a mind-altering 0.3% year-over-year “inflation” report for the month of May.

 

In other news, European producer prices (PPI) deflated -2.2% year-over-year. But don’t tell Bond Bears that.

 

What did my day look like?

 

  1. FX: I came into the day short the USD in Real-time Alerts and signaled buy/cover #Oversold
  2. Commodities: with our asset allocation at a 1yr high, I was satisfied and stayed put
  3. Bonds: didn’t do much of anything as we already trimmed our allocation to FI on last week’s rally
  4. *Stocks: opted to buy US stocks that look most like bonds in Utilities (XLU) and short more Retail (XRT)
  5. Hockey: coached practice until 7PM and felt normal for about an hour
  6. Family: kissed my kids on the forehead before bed

 

We either let these macro moves raise our anxieties to un-healthy levels or we live through them with a work/family life balance. I’m much more prepared on that front today than I was for the last US #LateCycle slow-down. That’s a #process too.

 

Back to the positioning (I think of asset allocation on a NET exposure basis, just because I love shorting/selling things when they are at the top-end of my risk range, so that I can hopefully cover/buy things back at the low-end of the range):

 

  1. US Equity Allocation = UP from 2% at the all-time SPX high of 2130 to 6% as of yesterday’s close
  2. International Equity Allocation = FLAT at 10% with most of that leaning long Japanese Equities
  3. Commodity Allocation = DOWN 1% from 13% to 12%
  4. Fixed Income Allocation = UP from 23% to 24%
  5. FX = DOWN from 3% to 2%

 

I realize how I communicate allocating capital to assets on down moves and taking some off on up moves isn’t for everyone. But it’s dynamic and daily. I do it every day in this transparent format so you can hold me to account.

 

On the Fixed Income vs. Equities debate I don’t really think that’s what matters most right now. I think the Sector Style and asset allocations you make to either the growth #accelerating or #decelerating exposures does.

 

In other words, if you think that:

 

A)     US growth is going to accelerate in 2H 2015, you buy inflation/growth stocks and short Treasury Bonds

B)      US growth is going to continue to decelerate in 2H 2015, you buy #YieldChasing stocks and bonds

 

Sure, you’ll have to live through volatility along the way. But, if the best longer-term risk management call you could have made 1-year ago was preparing for Global #Deflation, from here until 2016 it’s setting up for Global #GrowthSlowing (again).

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.01-2.29%

SPX 2098-2118
Nikkei 20103-20709
VIX 13.03-14.94
USD 94.83-98.33
EUR/USD 1.08-1.12
Oil (WTI) 58.68-61.90

Gold 1178-1203

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dollar Down, Rates Up? - z 06.03.15 chart


June 17, 2015

June 17, 2015 - Slide1

 

BULLISH TRENDS

June 17, 2015 - Slide2

June 17, 2015 - Slide3

June 17, 2015 - Slide4

June 17, 2015 - Slide5

June 17, 2015 - Slide6

June 17, 2015 - Slide7

 

BEARISH TRENDS

 

June 17, 2015 - Slide8

June 17, 2015 - Slide9

June 17, 2015 - Slide10


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The Macro Show Replay | June 17, 2015

 


Call Invite | Long WhiteWave Foods

Please join us live for our Black Book presentation on The WhiteWave Foods Company (WWAV) on Thursday, June 18th at 1:00 pm ET. We have had WWAV on our Best Idea List since 4/11/14, and will provide a detailed 90+ page updated presentation. 

 

Call Invite | Long WhiteWave Foods  - WWAV Invite Chart 1

 

Yes valuation is rich, but rightfully so, WWAV has been lapping its competitors in the marketplace. We strongly believe that this name still has more room to run. WWAV operates in many segments that are nowhere near their full potential, and are still gaining popularity among mainstream consumers.

 

Their brands are all number one or two in their respective categories, with the ability to transcend across categories. We have seen it with Horizon, entering the center-of-store with Mac & Cheese and other snacks and Earthbound into frozen, So Delicious into creamers, the list goes on and will continue to get longer.

 

Bottom line this growth story is not over, and we are very excited to tell you more about our thought process during our live presentation.

 

Longer term there are many way you can win with WWAV:

  1. Growth of the base business ― distribution growth & category expansions
  2. Growth through acquisitions ― string of pearls approach
  3. Sell the company ― many large CPG companies are looking for growth

 

CALL DETAILS

US Toll Free:

US Toll:

Confirmation Number: 39984323

Materials: CLICK HERE

 

If you have any questions heading into the call please let us know.

 

Howard Penney

(O)

(E)

 


FNGN: Adding Financial Engines to Investing Ideas

Takeaway: We're adding Financial Engines (FNGN) to Investing Ideas today.

Please note that we are adding Financial Engines (FNGN) to Investing Ideas today. Below is a note from Hedgeye CEO Keith McCullough explaining why. We will include additional, in-depth research color from Financials analyst Jonathan Casteleyn in this weekend's edition of Investing Ideas.

 

FNGN: Adding Financial Engines to Investing Ideas - z fin9

 

According to McCullough:

 

I've been trying to get longer (net) in signal/idea terms (on red, patiently) ahead of this Fed decision tomorrow. If the Fed does nothing but reiterate what it has been saying all year long ("data dependence") I go with the "buy everything" call on that (just like I did at the March 18th Fed decision). 

 

"Buy everything" is more of a generalization obviously - what I mean by that is a dovish Fed means A) Rates Down (bonds up) B) Dollar Down (stocks and commodities up). With Financial Engines specifically, we have a very much hated high short interest stock whose fundamentals have recently shifted from slowing to #accelerating.

 

Here's Jonathan Casteleyn's latest take on that front:

  • Financial Engines (FNGN) reported an in line quarter on both top and bottom line last night but boosted its full year 2015 guidance for revenue and EBITDA. The newest outline for revenues is now $315-$321 million, an increase of $2 million from the prior midpoint with the firm’s annual EBITDA marker now $97-$101 million, a $1 million increase from the midpoint in the last communication in 4Q14. With the firm’s revenue result of $75 million in the period, this creates a consistent ramp up in top line for the rest of the year with guidance outlining a $79 million result on average per quarter.
  • The firm’s seasoning rates while flat were guided to higher levels as well. The crux of this story will be the firm’s ability to turn its $1.0 trillion in assets-under-contract (AUC) into assets-under-management (AUM). While FNGN’s 26 month seasoning rate was flat year-over-year at 13.0%, the firm’s mark-to-market at quarter end hit a 13.1% penetration rate. In addition, the firm outlined that several large plans with lower penetration levels entered the 26 month cohort, which is blending overall penetration lower (but masking higher penetration outside of these plans).
  • With the increase in guidance and a generally favorable outline for the firm to improve its penetration rate, the setup is still too bearish in our view. With new highs in short interest and still marginally positive progress in core financials we maintain our positive disposition. We estimate fair value is $55 per share based on a $1.3 trillion AUC opportunity for the firm. We should know in the next several quarters if the firm’s penetration level can really improve which will drive the stock in the mean time.  

Buy signal here at the low-end of the FNGN risk range (power users of the #Process note that this recent correction in the stock came on decelerating volume, whereas the recent highs came on accelerating volume.

 

Cheers from London where its Pub time,

KM



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