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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.