Nasty Asset Price #Deflation

Client Talking Points

CHINA

They better re-halt – the Shanghai Composite Index was down -8.5% overnight (the biggest drop since the 2008 crash in global asset prices). They can halt and print, but they can’t print demand/growth (Industrial Profits move to negative -0.3% year-over-year in June – how is GDP +7.0%?). 

USD

As speculation rises that the Fed can’t raise rates into this slowdown (5YR UST breakevens are down -29 basis points in the last month as #deflation risk mounts), we should get an immediate-term oversold signal in the USD Index today (EUR/USD overbought at $1.10).

10YR YIELDS

We can’t count how many people told us the UST 10YR was going to “2.75%” (when it was at 2.50%); now it’s back down to 2.25%, German 10YR Bund yields 0.69% and Swiss 10s are back to negative -0.09% = Global growth and inflation slowing.

 

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Asset Allocation

CASH 50% US EQUITIES 6%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
GIS

General Mills (GIS) remains on the Hedgeye Consumer Staples Best Ideas list as a LONG. Key segments across the company are turning the corner and improving performance. Specifically GIS has figured out the yogurt category, after 3 years of struggling with Greek and losing on the core business, management has turned the Yogurt division into a growth segment. Cereal has obviously been a struggle for all companies participating. Although still down, the trend is looking better, in FY16 we hope to see the switch to Gluten Free Cheerios and other improvement, turn performance around.

PENN

Penn National Gaming reported Q2 profit of $16.9 million on Thursday. The company's profit of 19 cents per share beat analysts' expectations.  PENN posted revenue of $701 million in the period, which also beat forecasts.  Shares have climbed 40% since the beginning of the year and 58% over the last 12 months, obviously much higher than the S&P 500. Gaming, Lodging and Leisure Sector Head Todd Jordan was at Penn National Gaming's investor day on July 24th. He will provide a detailed update this week.

TLT

Those long of #LowerforLonger enjoyed another solid week of 2%+ gains for TLT and EDV. VNQ followed up last week’s gains with a pullback of equal size, but we received a positive sloth of data this week that confirms our long housing theme. A positive housing outlook within a bearish rate environment should be positive for VNQ.

Three for the Road

TWEET OF THE DAY

Tom Tobin is reviewing his SELL call on Zimmer $ZBH @HedgeyeHC this morning

@KeithMcCullough

QUOTE OF THE DAY

The future belongs to those who see possibilities before they become obvious.

John Scully

STAT OF THE DAY

Tourism in Cuba has jumped, up 15% in the first 5 months of this year.