Mr. Volatility

Client Talking Points

VIX

If you took down both your gross/net exposure to U.S. equity beta pre this breakout in volatility, you might feel better than most right now. Bullish breakouts in volatility rarely feel good for anyone; unless they can crack 14.21 on front-month VIX, this central planning panic continues to signal #on – don’t forget it’s #LateCycle U.S. please. 

CHINA

Chinese central-market-planners did not like the market’s reaction to a 49.4 PMI (June) so they tried to jawbone it (again) and this time it did not work. The Shanghai Composite is down -5.2% (down -16.1% month-over-month) and below @Hedgeye TREND resistance.

EUROPE

+1.4%-2.4% bounce in the FTSE and CAC and +1.7%-2.1% for the IBEX and DAX, but not one of the bounces were above @Hedgeye TREND resistance. Liquidity and levels matter here – so we would be in wait/watch mode; chasing high and freaking out low hasn’t worked; buying on the low-end and selling on the top-end of the risk ranges has.

 

 

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

Asset Allocation

CASH 48% US EQUITIES 6%
INTL EQUITIES 12% COMMODITIES 7%
FIXED INCOME 27% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
ZOES

We came out of the earnings report being very positive about management doing all the little things right. They continue to prove that they are some of the best operators in the industry. Importantly, many small cap restaurant companies with an undisciplined unit growth strategy experience significant labor inefficiencies as they expand. ZOES is in a different class of companies.  In a quarter where ZOES opened 12 new company-owned restaurants they managed to decrease both COGS and labor. We view ZOES as one of the best small cap growth names.  The company is set-up for long-term success for the following reasons:

  1. Superior brand positioning
  2. Management philosophy and execution
  3. Unit opening geographic profile
  4. Early-stage average unit volumes and returns
PENN

PENN’s new property, Plainridge Park in Massachusetts, had a strong opening. We expect slot win per day of $400, above Street expectations. In addition, June state gaming revenues will begin to roll out in 1-2 weeks. We expect June to be as strong as May, setting up Q2 to be estimate-beating quarter for PENN.

TLT

After a Fed-fueled week of strength in slow-growth, yield-chasing asset classes and long duration fixed income, both the Dollar and interest rates re-couped their losses from Fed Week. The dollar declined, rates increased, and as a result, those long of gold took some pain. Will this continue? Will a long, sustained rate liftoff ensue? We don’t think so. We continue to repeat that the chance of further downward revisions to forward looking growth estimates from the Federal Reserve and consensus macro is much more likely than not. The attempted suspension of economic gravity from policy makers weakens the currency and puts pressure on bond yields. We remain long of this set-up with gold and long-duration fixed income.

Three for the Road

TWEET OF THE DAY

Every European Equity market remains bearish TREND @Hedgeye - waiting & watching, not chasing

@KeithMcCullough

QUOTE OF THE DAY

Concentration is the secret of strengths in politics, in war, in trade, in short in all management of human affairs.

Ralph Waldo Emerson

STAT OF THE DAY

700 million pounds of chicken is purchased and 190 million pounds of red meat/pork purchased in the week leading up to July 4th.

 

 


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