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Client Talking Points

JOBS

Consensus is looking for +217K on headline NFP – what hyper-sophisticated, super secret quant gets you to that number? …. Carry July’s year-over-year growth rate to August and calculate the implied month-over-month change.  #Wahlah.  NFP growth peaked in February, net monthly payroll gains have transitioned from great (2014 =260K) to good (2015 YTD = 211K) and Initial Jobless claims hit their low watermark ~6 weeks ago.  Economic cycle tops are process but we’re late-cycle currently and the clock tick is getting louder on the current expansion.  Today’s Jobs data and the read-through to policy notwithstanding, slower-for-longer remains the intermediate-term call.  

YIELDS

The Fed has never hiked into a slowdown and, with both global and domestic growth decelerating, a policy mistake looks more likely to drive yield spread compression than not.  In high yield land, Deflation’s Dominoes land in Junk and spread risk remains alive and investible.  We took the other side of Fischer yesterday and shorted JNK in RTA.  

EUROZONE

German Factory Orders fell (-1.4% in JUL year-over-year vs. -0.6% forecast and +1.8% prior) and August Retail PMIs across the Eurozone, Germany, France, and Italy all declined versus the prior month.  Mario Draghi attempted to stoke the prospect of increasing the ECB’s QE program yesterday, but we continue to state that the trend of #EuropeSlowing cannot be fixed simply by magical QE fairy dust. Eurozone equities are all down a solid -1% to -2.5% today following central bank speak.  

 

**Tune into The Macro Show...special jobs report edition with Macro Analyst Christian Drake 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

In 2016 if $MCD does 5% same-store sales it will generate over $1.5B in incremental system-wide sales. No one is immune from the ADB pain..

@HedgeyeHWP

QUOTE OF THE DAY

In 2016 if $MCD does 5% same-store sales it will generate over $1.5B in incremental system-wide sales. No one is immune from the ADB pain..

@HedgeyeHWP

STAT OF THE DAY

TV ad spending alone is expected to reach $4.4 billion (including the general election campaign). The total spent so far by the GOP campaigns and the outside groups backing them: about $14 million.