Client Talking Points
This is probably our most contrarian theme that isn’t being bandied about yet – post the Greek clown show, in rate of change terms, European econ data continues to slow; German PMI 51.5 (new year-to-date lows) this morning and France back < 50 at 49.6 JUL vs 50.7 JUN.
Nasty week for anything linked to this uber-macro risk; don’t forget this is a credit risk signal inasmuch as it is a draw-down one for commodity linked currencies/countries. Russian stocks are down -1.3% this morning (-8.2% in the last month); Brazil -2.1% yesterday (-6.6% month-over-month).
Getting lots of questions on this exposure as the Russell 2000 is now -3% month-over-month (bearish TREND signal) but the “Russell Value” (IWN) is underperforming Russell Growth by 1100 basis points (its widest margin since 2011) – we liked IWM in Q1, but definitely not here.
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Top Long Ideas
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.
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.
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
TREASURIES: good wk for $TLT bulls, 2.28% 10yr as both global growth and inflation slow
QUOTE OF THE DAY
Living at risk is jumping off the cliff and building your wings on the way down.
STAT OF THE DAY
0.3% of solar energy from the Sahara is enough to power the whole of Europe.