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Client Talking Points

FED

Federal Reserve Vice Chairman Stanley Fischer opted for dovish comments on Friday, making his Saturday comments more hawkish – we guess they look at the S&P Futures now before saying anything of consequence (today he’d be dovish). Fed Fund futures have ramped back up to 38% on a SEP hike probability – reminder: the Fed has never hiked into a slowdown.

COMMODITIES

Dovish = commodity reflation; hawkish = commodity #Deflation – so the deflation TREND is right back on this morning with Oil, Copper, and Russia down -2-3%; WTI’s risk range blew out to $36.99-45.32 on Friday, all but ensuring that massive volatility remains in this asset class.

S&P 500

The S&P 500 still has the widest risk range our model has generated since 2008 at 1,835-2,017 with the more probable level being the downside one (-7.7% from Friday’s close), given that the Fed could be tightening into a 0.1% GDP environment here in Q3 (our low-end scenario with the high end being at 1.5% and the Atlanta Fed tracking 1.2%).

 

**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 67% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 3%
FIXED INCOME 30% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

We recently tried out the "Create Your Taste" experience at the newly remodeled McDonald’s location in Midtown East on the corner of 58th street and 3rd Ave. Walking into the newly remodeled MCD, we were greeted by the brand new self-order kiosks with attentive staff there to assist you. Customers were very interested in using the kiosks, and everyone using them seemed to be having an easy time with it.

 

For it being only two weeks into the process we were very impressed by the efficiency and mastery the staff is already displaying. We plan to head back to the same McDonalds location and check on their progress.

PENN

Our Gaming, Lodging & Leisure team is going to furnish a new update following their recent meeting with Penn National Gaming's management. They note that the stock has held up quite well despite increased market volatility. The bullish thesis on shares of PENN remains intact. Regional revenues remain strong in addition to the 2-year growth story, etc. Stay tuned.

TLT

As we outlined through various channels, we expect that high levels of volatility are here to stay for the foreseeable future. The biggest shift last week that we’ll call out is a bullish to more neutral intermediate-term view on the U.S. dollar which is why we added GLD to investing ideas in replace of UUP. To be clear, if growth continues to slow we want to be long of bonds (that view hasn’t changed in a year and a half).

 

From an asset allocation perspective here is the set-up:

  • Growth slowing: Long bonds and low-beta yield chasing sectors (TLT, EDV, XLU)
  • Shift to more dovish policy: long of GOLD as the shift weakens the value of the USD

We re-iterate the same view we’ve had since the beginning of 2014: Growth is slowing, and deflation remains a real risk (central bankers can’t solve this by talking down the currency). The fed will continue to push out the dots on “policy normalization.”

Three for the Road

TWEET OF THE DAY

COPPER: the Doctor didn't follow through either, -1.4% as #Deflation TREND remains

@KeithMcCullough

QUOTE OF THE DAY

When there is trust, conflict becomes nothing but the pursuit of truth.

Patrick Lencioni

STAT OF THE DAY

Last Monday Facebook, founder and CEO Mark Zuckerberg announced, Facebook hit a record of 1 billion people visiting the service in a single day. Facebook has about 1.5 billion active monthly users, this is the first time the site has had 1 billion unique people visit in a day.