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Captivating Parables

“From the very start of this captivating parable, I found myself relating to the character within.”

-Urban Meyer

 

That was a 2010 book recommendation from one of the best NCAA coaches of all-time. Urban Meyer is currently 38-3 coaching Ohio State Football and his teams have won 3 National Championships.

 

The book is called Lead For God’s Sake, by Todd Gongwer. And no, it’s not all about winning. In fact, it’s a repudiation of the win-at-all-costs (including our principles) mentality that some of the more self-centered in our society try to emulate today.

 

The book is about life and the foundations of all our pursuits. The manic nature of today’s macro markets is making me think about this book this morning. Was there any authentic leadership to begin with? Is there any trust? Where does this all end?

 

Captivating Parables - z u5

 

Back to the Global Macro Grind

 

That might be a little heavy for your morning brew, but economic gravity is getting heavier by the day at this point – and, instead of chasing the futures, we need to be probability-weighing the intermediate-to-long-term outcomes of ideological central planning.

 

Enter my Macro Team’s Q3 Global Macro Themes Deck. At 1PM EST today we’ll grind 70 slides of what we consider the #truth about the following economic and market risks:

 

  1. #ConsumerCycle (following our non-consensus #LateCycle call on US employment in Q2, this is a developing risk)
  2. #SecularStagnation (doubling down on our Global Demographic research, we go all secular on the Bernanke camp)
  3. #EuropeSlowing (you can’t print growth – this is the tail wagging the European dog; we’ll explain why)

 

While a goal is to be right on each of these themes, it’s not the purpose of this firm. I obviously get that achieving goals matters but, as I get more experience, I’m learning not to confuse my principles and purpose with my goals.

 

Our principles of Transparency, Accountability, and Trust have helped us build an independent research content production process that is repeatable. Every day, rain or shine, we rise and grind on the front-lines of the Global Macro debate.

 

No, that doesn’t mean we nail everything. Newsflash: neither do you. What it really means is that since we subject ourselves to every basis point in bond yields, every day, we have to test our premise faster than most. We have to fail faster. We have to learn faster.

 

What are we learning this early in the week?

 

  1. Burning Euros (down another -0.7% to $1.09) are perpetuating #StrongDollarDeflation risks, across markets
  2. With the US Dollar up again yesterday, the CRB Commodities Index got tagged for a -3% loss in the backfield
  3. With WTI Oil and Copper -7.7% and -3.5% on the day, respectively, both are right back in @Hedgeye TAIL risk mode
  4. Energy Stocks (XLE) led losers -1.3% on that yesterday and are already -2.2% to start July = down -7.1% YTD
  5. Industrial Stocks (XLI) fell to lower-lows yesterday (-4.5% YTD) and continue to signal #deflation in producer pricing
  6. The best defense against #DeflationDays remains the America Long Bond

 

Oh, and that China needs to pull a Greek-style central-market-planning move and halt trading of any stock that has gravity-based-volatility. Despite 203 tickers halted, the Shanghai Composite lost another -1.3% overnight, taking its crash in the last month to -25.8%.

 

But these are just immediate-term learnings. What about the intermediate-to-long-term? Having been the firm that initially warned you on volatility, deflation, and the probability of falling bond yields at this time last year, are we still relevant?

 

Or is it Captain Daily/Weekly Media who has won the day in making our profession a more transparent and accountable place? If Global Bond Yields were really “breaking out on inflation readings” in Q2, what about the #deflation of those inflations in Q3?

 

With both global growth and inflation expectations falling (again), Fed Fund Futures have dropped the implied probability of a September “rate hike” from over 40% at this time last week to 16% this morning.

 

But, again, that’s just the immediate-term TRADE. While the immediate-term parable of “free-markets” lost is captivating, from a leadership perspective it’s quite sad to watch. The long-term case for a world that is slower-for-longer is an unfortunate reality too.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.21-2.39%

SPX 2042-2087
VIX 15.59-20.11
USD 95.68-97.32
EUR/USD 1.09-1.12

Oil (WTI) 51.56-55.36
Copper 2.45-2.65

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Captivating Parables - z 07.07.15 chart


#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

 


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 80.32%
  • SHORT SIGNALS 78.48%

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


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."

 


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