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#LateCycle

Client Talking Points

UST 10YR

UST 10YR Yield of 2.16% reminds Bond Bears that they need more of a catalyst than a chart – with both growth and inflation slowing (at the same time) again, the fundamental catalyst for a big asset allocation to the Long Bond remains as intact as #LateCycle data is.

OIL

Capitulation yesterday on the down -4% daily drop for WTI, taking its 3 month #deflation/crash to -23.4% - then the bounce off the oversold line this morning +1.3% to $45.77 with a risk range of $45.32-47.90 – “cheap” getting cheaper.  

RUSSELL 2000

The Russell 2000 is down -4.9% from its all-time high and continues to be bearish on both our TRADE and TREND durations  as the Russell “Value” side of the equation is getting thumped (relative to Russell Growth) like it did when growth slowed in the summer of 2011.

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET, with Macro Analyst Darius Dale and Ben Ryan.

Asset Allocation

CASH 52% US EQUITIES 4%
INTL EQUITIES 9% COMMODITIES 0%
FIXED INCOME 21% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
HOLX

HOLX’s earnings release were as good as we expected, and in some spots, much better than our optimistic view. Given the move in the price, we did begin to do some work on Hologic’s Diagnostic segment. We touched base with a lab Director who currently does his testing on Hologic/Gen-Probe’s Panther system. During the call management made some positive comments about uptake of the systems and rising utilization per box. Our contact suggested the benefit from the Affordable Care Act was substantial  over the last 12 months, pushing volume up to a mid-teens growth rate, but that trends were flattening. But on the positive side Qiagen continues to cede share with an out of date test and the alternatives are primarily Roche and Hologic, but not Cepheid’s system. The bottom line is that we may be too conservative with our estimates for Diagnostics, which we’ve been assuming treads water from here.  However, we’re starting to think there is some incremental acceleration that’s possible, which would be welcome news indeed.  

PENN

After attending PENN’s analyst day at the Plainridge Casino in Massachusetts our Gaming, Lodging & Leisure Team struggled to find any negative takeaways. The property opened very strong in late June, and the strength continued in July. We are now raising our win per day per slot assumption to $500 from $400. Terrific highway access, a lower gaming tax rate and garage parking provide a competitive advantage in what seems to be a deeper market than the consensus view. Our 2015 and 2016 estimates are materially above the Street for EBITDA and EPS. Most importantly, we think PENN should generate an ROI of 28% on Plainridge, much higher than the Street anticipates.

TLT

As largely expected a sequential acceleration in GDP from Q1 to Q2 on a seasonally adjusted annual basis pulled forward the market’s expectation for a rate hike which = USD strength. The USD finished positive on the week (+0.50% on Thursday’s print alone).

  • U.S. GDP reported Thursday for Q2 came in at +2.3% on a Q/Q seasonally-adjusted annual rate and the market took it as a positive print à rate hike expectations pulled forward.
  •  Remember that 1) Consensus focuses on this SAAR number and 2) The GDP acceleration came off of an awful Q1 print (Q1 revised to a measly +0.60% for Q1 vs. initially reported -0.20%)
  • On a Y/Y basis (crazy Hedgeye speak) GDP for Q2 actually decelerated to +2.3% YY vs. 2.9% prior
  • With very difficult base effects in our model for 2H 2015 GDP we expect Q2 data (especially the GDP print) to provide support for the USD
  • Our expectation for Y/Y GDP in Q3/Q4 are +1.6% Y/Y (+1.4% Q/Q SAAR) and +1.5% Y/Y (+1.7% Q/Q SAAR) respectively; These prints (Q3 will come in October) will stoke a relatively more dovish FED for a short time (USD headwind) but until then we’ll ride the Q2 data train.   

 

Three for the Road

TWEET OF THE DAY

VIDEO: Got Gold History? #NewLows $GLD https://app.hedgeye.com/insights/45354-got-gold-history … via @Hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.

Sigmund Freud

STAT OF THE DAY

Spam accounted for 49.7% of email in June, which is actually the lowest it’s been since before 2003.