Sell the Beta Bounce

Client Talking Points

JAPAN

There was a big opportunity for former bulls (us) to sell Japanese Equities on the bounce, and thankfully we did. The Yen is up +1.2% this morning and pulverized the Nikkei making it the biggest loser in a sea of Asian September red overnight, down -3.8%.

EUROPE

Never mind the “China” – all of Europe (and the U.S.) continues to slow here in Q3 (vs. Q2) as well. Slowing PMIs + Deflation doesn’t make the Norwegians happy (their PMI dropped to 43.3, so we guess the bull case is it bounces from there!); no DAX support to 9,604.

OIL

Oil is down -4% this morning with another -20-25% of immediate-term downside in what we call the probable range. Oil volatility (OVX) busting a move towards 60 (again) on that - #NoWorries says consensus – all good, chase charts (in other news we reiterated the SELL call on CHK yesterday).

 

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

Asset Allocation

CASH 65% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 3%
FIXED INCOME 32% 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

Gold has resistance up at $1165, so if you're long some from last week's low, book some

@KeithMcCullough

QUOTE OF THE DAY

When all think alike, then no one is thinking.

Walter Lippman

STAT OF THE DAY

Late last week, it was reported by EPFR that global equity fund outflows totaled $25.9B, which was the largest sum on record (data going back to 2002). U.S. equities experienced a $12.3B outflow – the most in 16 weeks


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