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#Deflation Risk Ramping

Client Talking Points

EURO

They carted out every central planner and their brother’s cousin yesterday, but were not able to sustain a rally in either the European currency or their stock markets. The down -0.7% move to $1.09 in the Euro this morning was sharp – the correlation risk to inflation expectations #sharper. 

COMMODITIES

A huge move in single commodities (Oil -7.7% yesterday, Copper -3.5%) but the Index itself was -3% breaking all lines of @Hedgeye support. Good luck with the “inflation is back and that’s a global growth signal” thesis.

CHINA

If their “demand” accelerating is the thesis, even more luck required! China is now pulling the Greek move (suspending trading when they don’t like the results due to “volatility”). The Shanghai Composite was down -1.3% overnight taking the month-over-month crash to -25.8%.

 

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

Asset Allocation

CASH 52% US EQUITIES 3%
INTL EQUITIES 8% COMMODITIES 2%
FIXED INCOME 31% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
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)       

Three for the Road

TWEET OF THE DAY

Chinese central-market-planers suspend trading in 203 tickers due to "volatility"

@KeithMcCullough

QUOTE OF THE DAY

Nearly all men can stand adversity, but if you want to test a man's character, give him power.

Abraham Lincoln

STAT OF THE DAY

Chinese equity prices are down roughly 30% in a month and prices of Chinese steel fell another 2.7% week-over-week.


The Macro Show Replay | July 7, 2015

 


July 7, 2015

July 7, 2015 - Slide1

 

BULLISH TRENDS

July 7, 2015 - Slide2

July 7, 2015 - Slide3

July 7, 2015 - Slide4

 

 

BEARISH TRENDS

July 7, 2015 - Slide5

July 7, 2015 - Slide6

July 7, 2015 - Slide7

July 7, 2015 - Slide8

July 7, 2015 - Slide9

July 7, 2015 - Slide10

July 7, 2015 - Slide11


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.

MACAU JUNE CONFERENCE CALL TODAY AT 11AM

We will host a conference call TODAY, Tuesday, July 7th at 11am ET to discuss the latest Macau data, our outlook on the market and the stocks and the presentation of a new, original research topic.

 

RELEVANT TICKERS INCLUDE:

LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.

 

 

DISCUSSION POINTS

  • Details behind June’s disappointing performance 
  • Discussion of Base Mass trends including an analysis of table minimum bets
  • The “true” performance of the Mass segment after adjustment for smoking ban related table reclassifications
  • Revised 2015 monthly market projections
  • Q2 earnings preview:  Hedgeye company EBITDA estimates vs the Street (LVS, WYNN, MGM, MPEL, and Galaxy Entertainment) 
  • How has Galaxy Phase 2 impacted the market, the other concessionaires, and what should we expect going forward? 

 

CALL DETAILS

Attendance on this call is limited. Ping  for more information


Cartoon of the Day: Boom! (Or Is That Bust?)

Cartoon of the Day: Boom! (Or Is That Bust?) - Greece cartoon 07.06.2015

"After introducing single-shot Hedgeye Cartoons in the last year," Hedgeye CEO Keith McCullough wrote in today's morning market note, "we may have to resort to full-form illustrative children’s books in order to explain this Greek debt drama."

 


Referendums Have (Deflationary) Consequences

The Euro is down on the “NO” news out of Greece and the risk range here is widening again to $1.09-1.13. That should be respected as it’s:

 

A) A leading indicator for rising volatility in Foreign currencies and Commodities and

B) An explicit #deflation risk on signal (think inflation expectations of things like Oil and low-quality peripheral debt).

 

Referendums Have (Deflationary) Consequences  - z GREECE 07.06.15 chart

 

On a related note, WTI Oil is getting smashed for a -4.8% loss this morning. (That’s after a -6.7% drop last week.) It’s 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.

 

***Finally, if you haven’t read it already… Make sure to check out this special contributor insight on the Gong Show in Greece from our good friend Daniel Lacalle. He knows this story inside out.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%
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