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Slow…Halt…Ramp!

Client Talking Points

USD

Mario Draghi did the double-whatever-it-takes yesterday and the Euro dove to the low-end of my immediate-term $1.08-1.11 risk range; that finally puts USD Index immediate-term TRADE overbought in what continues to look like a #deflationary redo for certain asset prices, earnings, etc. 

#DEFLATION

Most obviously you can see this in both commodities themselves this week and their equity market links – Copper and Russia (stocks) both down -0.5-1% again this morning and a lot of these things are close to 3 month lows with USD at 3 month highs.

EQUITIES

European and Chinese halts worked (Greece is still halted) and the U.S. Equity ramp came right after S&P 500 (Index + Emini) net SHORT position (CFTC futures/options contracts) peaked at -162,467 at the July U.S. equity market low! Risk ranges are now as wide as they’ve been all year.

 

**The Macro Show - CLICK HERE to watch Hedgeye CEO Keith McCullough and Macro Analyst Christian Drake.

Asset Allocation

CASH 56% US EQUITIES 2%
INTL EQUITIES 5% COMMODITIES 0%
FIXED INCOME 27% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
GIS

General Mills remains on the Hedgeye Consumer Staples Best Ideas list as a LONG. GIS has a lot of things going for it and they are going to show it in the top and bottom line this year. Over the last couple of months, the company has announced the removal of artificial colors and flavors from their cereals. More recently, they have committed to using only cage-free eggs.  Many of these small actions that management is taking are going to have a snowball effect as they go throughout FY16. Below is a list of some of the biggest things that we are looking forward to this year:

  1. Yoplait in China
  2. Gluten-Free Cheerios
  3. No artificial colors or flavors in the cereal
  4. Granola innovation / Muesli
  5. Greek Plenti / Whips
  6. Original yogurt sugar reduction
  7. Renovation on Grain Snacks
  8. Strong push on Natural & Organic products
  9. Delivering Value to consumer on brands like Totino’s and Hamburger Helper
  10. Bringing U.S. innovation International
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

Greece keeping the stock market (and banks) closed until next wk - should be interesting when they open...

@KeithMcCullough

QUOTE OF THE DAY

A great man is always willing to be little.

Ralph Waldo Emerson

STAT OF THE DAY

Since peaking on June 12th the Shanghai and Shenzhen Composite indices have lost -26% and -33%, respectively. That equates to a combined loss of over $3.2 trillion.


CHART OF THE DAY: The Risk Of Raising Rates Right Now

Editor's Note: Below is an excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. If you're interested in getting a step ahead of consensus each morning click here to learn more. 

 

CHART OF THE DAY: The Risk Of Raising Rates Right Now - z chart of day 07.17.15 chart

 

...Not only are whoever these “economists” are now completely ignoring Mr. Macro Market’s opinion (Fed Fund Futures imply less than a 15% chance of a SEP hike), but they are at complete odds with me on the risk of raising rates into a slowdown.

 

At least since the last two Wall Street tops (2000 and 2007), the Fed has only eased during slowdowns. Remember the man before Draghi at the ECB helm, Jean-Claude Trichet? He raised rates in 2011 and pretty near blew up the capital market world.

 

Ah, what do I know about buying cyclicals and/or tightening at the end of a cycle? It’s probably different this time. Post a 6yr equity ramp shouldn’t you pay 351x earnings for Netflix or chase QQQs?

 

I’m hearing the charts “look good.” They did in 2000 and 2007 too.

 


Giving Back

 “We make a living by what we get. We make a life by what we give.”

-Winston Churchill

 

I’ve been grinding on one steamer of a roady this week (96 degrees in a suit in Dallas yesterday), so now I’m looking for some love. I’m proud to announce that our team’s charity outreach program is hosting its 2nd annual Hedgeye Cares Charity Golf Challenge on Tuesday, July 21st at GlenArbor Golf Club in Bedford, NY. 

 

For a 2nd straight year we’re honored to be donating 100% of the proceeds from the tournament to support our area’s underprivileged youth through the Bridgeport Caribe Youth Leaders (BCYL), a 501(c)(3) organization. Here’s a short video we put together featuring kids in the program explaining how BCYL has changed their lives and what BCYL has meant to them: https://www.youtube.com/watch?v=t5NgER166I0.

 

We’re also extremely thankful to The Lincoln Motor Company for its title sponsorship for a second year running.  Lincoln is a great American luxury brand that recognizes the importance of giving back to communities across the country and makes a significant effort to give back.  To learn more and to Check out the All-New 2016 Lincoln MKX and the Continental Concept, visit www.lincoln.com.

 

Giving Back - Golf Challenge

 

It’s not too late to support our tournament and donate to BCYL. For more details on how you can contribute please email Josefine Allain at . We still have a few foursomes left (I cannot confirm or deny that there will be NHL hockey talent at the event - so please be aware of errant 315 yard drives).

 

You can also follow all of the day’s action (from Lincoln test drives before tee-off to photos from the course) on twitter via the handles @LincolnMotorCo and @Hedgeye. Thanks again to all of our event sponsors and participants for their generous donations! 

 

Back to the Global Macro Grind

 

Slow --> Halt --> Ramp!

 

  1. USD – Draghi did the double-whatever-it-takes yesterday and the Euro dove to the low-end of my immediate-term $1.08-1.11 risk range; that finally puts USD Index immediate-term TRADE overbought in what continues to look like a #deflationary redo for certain asset prices, earnings, etc.
  2. #Deflation – most obviously you can see this in both commodities themselves this week and their equity market links – Copper and Russia (stocks) both down -0.5-1% again this morning and a lot of these “inflation expectations” things are close to 3 month lows with USD at 3 month highs
  3. EQUITIES – European and Chinese halts worked (Greece is still halted) and the US Equity ramp came right after SP500 (Index + Emini) net SHORT position (CFTC futures/options contracts) peaked at -162,467 at the July US equity market low! Risk ranges are now as wide as they’ve been all year

 

What does a widening risk range mean?

 

It means my risk management model is signaling a wider range of probable immediate-term outcomes. In other words, it usually portends rising volatility (since volatility is the variance of a price series over time) from this VIX 12 level.

 

There’s also a widening range of consensus opinion (vs. mine) on A) whether the Fed hikes in 2015 or not and B) whether or not moving forward with that would be a good or bad thing.

 

Here’s the latest Wall Street Journal Poll:

 

  1. 82% of economists polled see a SEP hike (vs. 72% last month)
  2. 15% of economists polled see a DEC hike (vs. 9% last month)
  3. 71% see it as a “risk” that the Fed hikes “too late”; 29% see it as a risk that they hike “too early”

 

Wow. Not only are whoever these “economists” are now completely ignoring Mr. Macro Market’s opinion (Fed Fund Futures imply less than a 15% chance of a SEP hike), but they are at complete odds with me on the risk of raising rates into a slowdown.

 

At least since the last two Wall Street tops (2000 and 2007), the Fed has only eased during slowdowns. Remember the man before Draghi at the ECB helm, Jean-Claude Trichet? He raised rates in 2011 and pretty near blew up the capital market world.

 

Ah, what do I know about buying cyclicals and/or tightening at the end of a cycle? It’s probably different this time. Post a 6yr equity ramp shouldn’t you pay 351x earnings for Netflix or chase QQQs?

 

I’m hearing the charts “look good.” They did in 2000 and 2007 too.

 

Our immediate-term Global Macro Risk Ranges (and intermediate-term TREND views in brackets) are now:

 

UST 10yr Yield 2.20-2.46% (bearish)

SPX 2038-2130 (neutral)
RUT 1 (neutral)
Nikkei 20105-20759 (bullish)
VIX 11.01-20.06 (bullish)
USD 96.40-97.91 (bullish)
EUR/USD 1.08-1.11 (bearish)
YEN 122.41-124.56 (bearish)
Oil (WTI) 50.06-53.64 (bearish)

Nat Gas 2.66-2.94 (bearish)

Gold 1140-1161 (bearish)
Copper 2.45-2.59 (bearish)

 

Best of luck out there today,

KM

 

Click image to enlarge 

Giving Back - z chart of day 07.17.15 chart

 


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July 17, 2015

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BULLISH TRENDS

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BEARISH TRENDS

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Cartoon of the Day: 7.0!

Cartoon of the Day: 7.0! - China GDP cartoon 07.16.2015

"Magically, the Chinese reported an alleged 7.0% GDP for Q2 after 7.0% in Q1 - not 6.8; not 7.2 - straight 7.0..." -Hedgeye CEO Keith McCullough in a tweet yesterday after China's head-scratching GDP report.


HOLX: Adding Hologic to Investing Ideas

Takeaway: We are adding Hologic to Investing Ideas today.

Please note we are adding Hologic (HOLX) to Investing Ideas today. Below is a brief explanation from Hedgeye CEO Keith McCullough. Our Healthcare team led by Tom Tobin will provide additional color going forward.

 

HOLX: Adding Hologic to Investing Ideas - z gg

 

Buy signals in HOLX have been hard to come by (the stock hasn't gone down much), but a sell-side firm downgraded it today so it's tapping the low-end of our immediate-term risk range. Tom Tobin remains The Bull.

 

On Wednesday July 22 we are hosting a conference call and live studio event for institutional subscribers to review our outlook for HOLX.  We first added HOLX to the Hedgeye Best Idea List as a long in April 2014 when the stock was in the low $20s.  

 

Since then, our original thesis has played out, with the stock doubling as we predicted, and many of the fundamental and sentiment drivers maturing on schedule.   We will review the path into the $50s on our call next week ahead of HOLX earnings report July 29.

 

Buy red,

KM


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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