CLIENT TALKING POINTS
USD
In the end, Americans should like our long-term #StrongDollar theme, but not all macro markets and corporates will in the meantime – this is the tug-of-war and #deflation is winning it. That said the USD is signaling immediate-term TRADE overbought at $1.08 vs Euro today, so be careful with grossed up Energy/Metals shorts.
UST 2YR
This is the 4th time the chartists have called for a “breakout” in the 2YR at 0.73-0.75% (since March) and every time that’s been wrong as both growth and inflation data slowing continue to back Fed Fund Futures off the SEP rate hike – we’re one bad jobs report away from rates breaking down faster (again).
CHINA
Slower-for-longer (pretty obvious from a bottom up or top down research perspective)? But how about lower-for-longer for the propped up A-Shares? Couldn’t hold anything more than a 1-day gain with the Shanghai Composite down another -1.7% overnight, continues to signal bearish TREND in our model with no support to 3,441.
TOP LONG IDEAS
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 But on the positive side Qiagen continues to cede share with an out of date test and the alternatives are primarily Roche and Hologic, but not Cepheid’s system.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.
Asset Allocation
| CASH | 50% | US EQUITIES | 6% | |
| INTL EQUITIES | 10% | COMMODITIES | 0% | |
| FIXED INCOME | 22% | INTL CURRENCIES | 12% |
THREE FOR THE ROAD
TWEET OF THE DAY
VIDEO: This is What Deflation Leads You To $TLT https://app.hedgeye.com/insights/45640-mccullough-this-is-what-deflation-leads-you-to… via @hedgeye
@KeithMcCullough
QUOTE OF THE DAY
Only the wisest and stupidest of men never change.
Confucius
STAT OF THE DAY
The average American spends about 70 hours a year on lawn and garden care, according to the American Time Use Survey.