Growth, Greece and Housing

Client Talking Points

GROWTH STYLE FACTOR

For the first time in 5 years, large-cap growth is trading at a premium to large-cap value and we anticipate this trend will continue as the cycle slows. Specifically, when broad economic growth slows, investors pay up more for real growth opportunities and rotate out of turnaround growth stories at the margins. 

GREECE

You think things are all wrapped up in Greece? (Last night Greek lawmakers approve a second set of reforms, 230 to 63)  Far from!  While we expect Greece will ultimately receive another lifeline (and debt concessions), the Eurozone parliaments all need to vote on the “details”.  We expect the indecision along the way to finalize a deal to continue to pressure Europe’s markets to the downside.  Side note, Greece’s equity market is still not expected to open until next week, at the earliest.

HOUSING

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%).

 

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

Asset Allocation

CASH 54% US EQUITIES 4%
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

Nice but sleepy quarter out of $DNKN

@HedgeyeHWP

QUOTE OF THE DAY

If the stars should appear but one night every thousand years how man would marvel and adore.

Ralph Waldo Emerson

STAT OF THE DAY

New York City -- A state wage board has voted, unanimously, to raise the minimum wage for restaurant workers to $15 an hour. At that pay rate, a fast-food worker will make $600 a week for 40 hours of work, or $31,200 a year.


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