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Client Talking Points

CHINA

Well-timed centrally planned market bounce by the Chinese (if you A. aren’t allowed to sell and/or B. could go to jail for doing so, that’ll work) – they called sellers “hostile short sellers”, but we have a feeling the guys without high-school educations aren’t that sophisticated. The Shanghai Composite Index bounced +5.8%, it only needs another +37% to get back to 1-month breakeven. 

EUROPE

Greek banks are now closed until Monday (the stock market too) – and, again, that’s clearly one way for central planners of risk to stop markets from going down - #halt them! We care a lot more about levels here in the DAX, CAC, IBEX (and way too bullish 2nd half 2015 European growth estimates) than the “off the lows moves”.

OIL

WTI Oil bounced +1.1% but is still down -16% since the May “inflation is back” highs. If you’re looking for compromise in Europe, we think that = Down Euro, Up Dollar, Down Oil (down Junk Bonds, EM, etc.) so keep this ongoing #deflation of the reflation in focus – bounces have been selling opportunities.

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET with Director of Research Daryl Jones and Macro Analyst Ben Ryan.

Asset Allocation

CASH 49% US EQUITIES 4%
INTL EQUITIES 9% COMMODITIES 3%
FIXED INCOME 30% INTL CURRENCIES 5%

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

VIDEO: A Demographic 'Train Wreck' In China https://app.hedgeye.com/insights/45106-mccullough-a-demographic-train-wreck-in-china… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

No man will make a great leader who wants to do it all himself or get all the credit for doing it.

Andrew Carnegie

STAT OF THE DAY

81% of MCD restaurants are franchised, with a goal to move to a 90% franchise system. MCD receives two payments from franchisees, Royalty (~4% of sales) and Rent (~9% of sales, when MCD owns the real estate).