CLIENT TALKING POINTS
EURO
The Euro is down on the NO news and the risk range here is widening again to $1.09-1.13 which should be respected as it’s A) a leading indicator for rising volatility in FICC and B) an explicit #deflation risk on signal (think inflation expectations of things like Oil and low-quality peripheral debt).
YIELDS
The credit risk trade is back on this morning with UST and German Yields down to 2.30% and 0.73% (vs. Italian and Portuguese 10YR Yields up +10-11bps to 2.34% and +3.02%, respectively) – don’t forget the slowing #LateCycle U.S. jobs report from Friday either please.
OIL
WTI Oil smashed for a -3.7% loss this morning and that’s after a -6.7% drop last week – down -44% year-over-year the #StrongDollarDeflation risk remains for most things levered to inflation expectations (including junk debt) – this is why big beta to “reflation” is in drawdown mode again.
**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET with CEO Keith McCullough and Macro Analyst Ben Ryan.
TOP LONG IDEAS
KATE
We’re all-in on Kate Spade at current levels. The Hedgeye Retail team believes that comps are accelerating into the double digits in 2H, and we think that KATE’s margin guidance for this year will prove conservative. Ultimately, we think that numbers this year are 10% too low – a delta that widens to 20%+ next year, and to 50%+ by 2018 when we think KATE has $2.50 to $3.00 in earnings power. Using decelerating multiples as growth accelerates and the P&L matures gets us 50%+ upside in a year and a 2-3-bagger by 2018.
PENN
Our Gaming, Lodging and Leisure team reiterates its high-conviction thesis on Penn National Gaming. PENN remains one of our favorite names on the long side. It maintains the best new unit growth story in domestic gaming. PENN's property in Massachusetts has had an excellent start. We expect June to be as strong as May, setting up Q2 to be estimate-beating quarter for PENN.
TLT
The Hedgeye Growth, Inflation, Policy (GIP) model is signaling a move into QUAD 3 for the second half of 2015. This is a set-up for the domestic economy where growth is slowing and inflation is accelerating. We reiterate our intermediate to long-term bullish bias on long-duration Fixed Income and gold. Our back-testing results cast a favorable outlook for Long-Term Treasuries, REITs, and Gold with a favorable set-up as seen in the first three charts below. When growth is slowing (QUAD 3 and QUAD 4), long term rates tend to move lower. The logic is simple:
- #GrowthSlowing: As growth slows, a revision in forward-looking growth expectations manifest in lower yields
- #InflationAccelerating: Commodity prices have made a significant move off of the 2015 lows as seen in the last chart below, and we expect the follow-through to play out in Q3 inflation readings. CPI readings track the commodity price sample used in chart #4 below very closely and CPI compares are easy in 2H 2015 vs. more difficult GDP comps (QUAD 3)
Asset Allocation
| CASH | 51% | US EQUITIES | 4% | |
| INTL EQUITIES | 8% | COMMODITIES | 4% | |
| FIXED INCOME | 30% | INTL CURRENCIES | 3% |
THREE FOR THE ROAD
TWEET OF THE DAY
In today's Early Look "Oh, No!" I explain how Down Euro drives Global #Deflation Risk
@KeithMcCullough
QUOTE OF THE DAY
If a man does not know to what port he is steering, no wind is favorable to him.
Seneca
STAT OF THE DAY
Ranking and review site Niche.com identified which traditional colleges in the U.S. are the toughest to get into, Harvard was ranked #1 with an acceptance rate of 5.8%.
