Slowing: Growth and Inflation

Client Talking Points

#STRONGDOLLAR

Has a chicken scratch down-day yesterday and is back up vs $1.09 EUR this morning – this is very deflationary, but anyone positioned for that from JUL (last year) to JAN (this year) knows that; bearish for multi-national revenue/eps growth too. 

EARNINGS

Apple was not Google, and Industrials revenues are down 4% (earnings -8%) for Q2 reporting to-date. Most materials and energy (read: #Deflation risk) companies haven’t printed and guided to reality yet – stay tuned (and short Industrials = XLI).

RATES

Locally and globally, rates continue to make a series of lower-highs as sovereign bond market volatility calms (and dovish Fed rhetoric ramps) – long-term investors stayed with the Long Bond because they get growth/inflation slowing – people chasing charts, sold them (German 10yr = 0.76%, Swiss 10yr back to negative yield -0.01%, 10yr JGB down to 0.40%).

 

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Asset Allocation

CASH 56% US EQUITIES 2%
INTL EQUITIES 4% COMMODITIES 0%
FIXED INCOME 27% INTL CURRENCIES 11%

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 (2mins): Gold vs. Central Bankers? https://app.hedgeye.com/insights/45332-mccullough-gold-vs-central-bankers … $GLD@KeithMcCullough

QUOTE OF THE DAY

The significant problems we face cannot be solved at the same level of thinking we were at when we created them.

Albert Einstein

STAT OF THE DAY

In more than 135 years of global temperature data, four of the five hottest months on record all happened in 2015: February, March, May, and now June.