CLIENT TALKING POINTS
CHINA
The 2% Yuan devaluation may seem small, but it was a meaningful capitulation from Beijing in reaction to an awful month of economic data. Retail sales, industrial production, and fixed asset investment reported overnight all slowed and missed expectations. Fixed asset investment has grown at the slowest pace in 15 years through the first 7 months of this year and property investment slowed to +4.3% y/y in July which is the slowest pace since March 2009. You can’t centrally plan real economic growth.
BONDS
UST 10YR Yields retreated -9 basis points yesterday on the news and are seeing follow through today, trading down another -8 basis points to 2.05% with the yield curve flattening towards a new 52-week low. German 2YR Yields at -0.29% are back on year-to-date lows as well as slower (growth) and lower (rates) for longer continues to manifest globally.
USD
With the U.S. pursing a divergent monetary policy pass and currency wars in re-crescendo globally, tacit acceptance of a stronger currency by domestic policy makers equates to de facto tightening. Policy makers anchor on real rates and the real cost of capital in determining policy’s impact on investment spending. In so much as ↑ Dollar = ↓ Inflation = ↑ Real Rates, a stronger currency = tightening without explicit policy action. Jackson Hole is the next currency event catalyst and a prime platform for ECB President Mario Draghi to jawbone the Euro lower (and $USD higher).
TOP LONG IDEAS
HOLX
In an analysis of the demographics of the newly insured, Pap testing, HPV, and mammography were at the top of the list of products that would be positively impacted by the ACA. As we reach the #ACATaper stage, will HOLX take a hit to their Diagnostic segment? It is possible, in our view, but so far a minor risk. As we learned last week from a lab operator, Qiagen is likely to continue to cede their 14% HPV testing share to HOLX. So while the #ACATaper appears to be finally here, there are offsets. On a disappointing note, our 3D Tomo Tracker update for July came in at 24 facilities. Down sequentially from June, and down from a peak of 54 in May. Our forecast algorithm, which is based on these updates, remains unchanged. While 20 is low, it is probably a blip in the longer term adoption cycle.
PENN
PENN has emerged as the first domestic gaming growth story in 10 years with a new casino in Massachusetts this year and one in San Diego next year. Meanwhile, regional gaming trends have stabilized, providing near term earnings visibility and upside. Upcoming catalysts include the monthly release of State gaming revenues for July, including Massachusetts, and positive earnings revisions.
TLT
Sometimes the macro rotation and allocation playbook is relatively straightforward. As growth slows and "reflation" deflates, you want to be buying A) Long-term Bonds and B) stocks that look like bonds. Bond proxies and defensive yield consistently outperform alongside the dual deceleration in demand and prices and Utilities and REITS remain the go-to sectors for growth slowing, defensive yield exposure.
Asset Allocation
| CASH | 60% | US EQUITIES | 4% | |
| INTL EQUITIES | 5% | COMMODITIES | 0% | |
| FIXED INCOME | 24% | INTL CURRENCIES | 7% |
THREE FOR THE ROAD
TWEET OF THE DAY
Panic! China Central Planning Style https://app.hedgeye.com/insights/45762-panic-china-central-planning-style… via @hedgeye
@KeithMcCullough
QUOTE OF THE DAY
The most powerful weapon on earth is the human soul on fire.
Field Marshal Ferdinand Foch
STAT OF THE DAY
Hilary Clinton is rolling out a $350 billion college affordability and student debt relief plan, which includes cutting student loan rates for ~25 million borrowers through refinancing programs for both private and federal loans and a “Borrower Bill of Rights” to increase servicer responsibilities.
