#Deflation

Client Talking Points

VIX (& VOLUME)

Unbelievably low volume at the all-time retest of the SPY highs yesterday (Total U.S. equity market volume -21% and -24% vs. the 1 month and 1 year averages, respectively) and unless it’s different this time, making sales with front month VIX < 12 continues to work. 

RUSSELL 2000

Down -0.5% vs. SPX +0.1% yesterday and we think a lot of this can be explained by the S&P 500 having a big net short position (-119,800 non-commercial CFTC contracts) vs. RUT having a relatively too bullish one at -7,533 contracts.

GLOBAL EQUITIES

Everything commodity-deflation linked hammered; please stay clear of those “reflation” ideas – long our favorite equity market (Japan +6 days in a row, +3.3% month-over-month vs. Russia and Brazil -7.4% and -3.3% month-over-month, respectively).

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET.

Asset Allocation

CASH 55% US EQUITIES 3%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 26% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
GIS

The General continues to make tough calls as they work to further streamline their manufacturing footprint as part of Project Century. Last week, announcing the closure of two plants, one in West Chicago, IL and the other in Joplin, MO, eliminating approximately 620 positions in the process. West Chicago produced cereal and dry dinner products for the U.S. Retail organization, while the Joplin facility was acquired as part of the Annie’s acquisition and produced snacks. Because of union negotiations management is expecting these actions to be fully executed by fiscal 2019. We view this as a big positive for the company as they go to a more nimble asset light model, which will save on capex and allow it to be allocated to higher growth product platforms.

PENN

According to Gaming, Lodging and Leisure Sector Head Todd Jordan, additional state gaming agencies have reported revenues for the month of June. The good news here is that Penn National Gaming remains on track to beat second quarter estimates this Tuesday July 23rd. In addition, PENN will be hosting an investor day on July 24th. We will be there and communicate any noteworthy color and developments. Bottom line? The company remains one of our favorite names on the long side and boasts the best new unit growth story in domestic gaming.

 

TLT

After an awful retail sales print on Tuesday, the confluence of growth slowing data reared its ugly head Friday with a +0.1% year-over-year headline CPI print for June and a UofMich consumer sentiment reading that declined to 93.3 from 96.1 in May. Note that a +0.1% inflation rate is a heck of a long way from the Fed’s 2% target. These two prints were successful in taking the 10-Year Treasury yield down 10 basis points from Monday’s highs to finish the week at 2.35%. We remain one of the lonely bulls on Treasury bonds (bearish on yields) via TLT, EDV, VNQ.

Three for the Road

TWEET OF THE DAY

VIDEO: Being Long Gold is a Disaster https://app.hedgeye.com/insights/45308-mccullough-being-long-gold-is-a-disaster … via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

hink of giving not as a duty but as a privilege.

John D. Rockefeller Jr.

STAT OF THE DAY

A large fire consuming 3,500 acres broke out around I-15 in California on Friday, destroying 20 vehicles and 4 homes.


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Todd Jordan on Las Vegas Sands Earnings

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