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Client Talking Points

EURO

Keeping this Greek Gong Show together is net bearish for the Euro (booting them and/or any other dysfunctional government is bullish) – that remains our long-term call – as #EuropeSlowing continues 2H 2015, they’ll have to print, bail, print. 

OIL

Follow #Deflation’s correlation risk: Down Euro (-0.7% to $1.10 vs. USD) equals #StrongDollar equals Down Oil (-1.5% with no support for WTI to $49.42) equals Down Gold (-0.6% this am, and breaking back down to bearish TREND @Hedgeye).

YIELDS

Yields, up, pretty much across the board on this (including the periphery – Spain +7 basis points) but the US 10YR is just trading in a tightening risk range; at the low-end of the 10YR range = 2.20%, sell bonds; at the high end of the range = 2.47%, you buy bonds – same with equities; we would fade momentum moves, don’t chase.

 

**The Macro Show - CLICK HERE to watch a replay of today's edition and learn under what scenario Hedgeye CEO Keith McCullough believes the stock market could crash.

Asset Allocation

CASH 52% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 28% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
KATE

Hedgeye’s Retail Team held a "Flash Call" on Kate Spade recently to address the concerns we’ve been fielding about the brand and company from institutional investors in light of the selloff since the company reported earnings in early May. Here were our conclusions from the call:

  1. Some concerns are valid, some are not.  We’ve had more questions and concerns from investors on KATE over the past two weeks than we’ve had all year. Given the weakness in the stock, we wanted to address these issues.
  2. The business is absolutely on track. Comp trends, ecommerce, and margins look fine from where we sit. The company actually managed to get estimates for the quarter and the year to very achievable levels.
  3. Why no one cares is the bigger question. But new investors largely don’t care, as they perceive “The Space” to be broken, and KATE to be expensive, volatile, and unmodelable. In the end it’s too small for them to ‘have to care’.
  4. 4.       In the end, execution wins. We think that “The Space is Broken” argument is laughable. The softer concerns like disclosure and management stock ownership are more valid. But when all is said and done, watch what they do, not what they say. This stock is flat-out cheap and growing at 50%.
PENN

Gaming, Lodging and Leisure Sector Head Todd Jordan reiterates his team's bullish high-conviction thesis on Penn National Gaming. The company remains one of our favorite names on the long side and boasts the best new unit growth story in domestic gaming. Jordan further notes that with more states releasing their June gaming revenues this past week, we feel more confident in our higher than consensus Revenue, EBITDA, and EPS estimates.

TLT

Long-term Treasury rates remain the best proxy for forward-looking growth expectations.

 

We outline three components of secular stagnation below to explain the SAVINGS/INVESTMENT GLUT that is at the heart of the academic argument for current policy measures:

  1. Negative demographic trends globally (decline in population growth and aging population)
  2. Reduced capital intensity in leading industries (think of the capital and labor required to start Facebook over U.S. Steel)
  3. Falling relative prices of capital goods       

Three for the Road

TWEET OF THE DAY

CHINA: +2.4% for the non-halted 1/2 of Chinese stocks, Shanghai Comp still -23.2% mth-over-mth

@KeithMcCullough

QUOTE OF THE DAY

Skill and confidence are an unconquered army.

George Herbert

STAT OF THE DAY

The American Pet Products Association estimates $60.59 billion will be spent on pets in 2015, up about 25% from five years ago.