CLIENT TALKING POINTS
EURO
Pretty straightforward trade here with another socialist compromise equating to Euro +1% vs. USD and all of the correlation trades to USD reflating. The key here isn’t being reactive, its making good decisions at the low and high end of the range which is now 1.09-1.12 EUR/USD. In other words since we have no European shorts on, we’ll probably start making sales at EUR/USD $1.12 (they can’t print growth).
OIL
Euro Up equals Dollar Down equals Commodities/Oil Up, but the risk ranges here have widened, big time (leading indicator of continued volatility) – the risk range for WTI is now $49.62-55.29 and we see no reason why you can’t test the top-end of that range if Janet Yellen is dovish in here Cleveland speech.
CHINA
Last, but not least, big night for the non-halted (> 1400 stocks still halted) part of the market – Shanghai Comp +4.5% on the session but still in crash mode, -24.5% month-over-month. We’re not smart enough to dip a toe in this market yet (plus we wouldn’t want it chopped off by a Chinese dude if we then made a sale).
**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 | 52% | US EQUITIES | 4% | |
| INTL EQUITIES | 8% | COMMODITIES | 2% | |
| FIXED INCOME | 28% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
McCullough: #Draghi Is Gearing Up For More 'Cowbell'
https://app.hedgeye.com/insights/45133-mccullough-draghi-is-gearing-up-for-more-cowbell…
via @KeithMcCullough on @FoxBusiness
@Hedgeye
QUOTE OF THE DAY
The greatest of faults, I should say, is to be conscious of none.
Thomas Carlyle
STAT OF THE DAY
As of 2013, ~41% of Households making < $45K paid more than 50% of income towards housing costs while over 70% of households paid more than 30% of income towards rent.