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Client Talking Points

VIX

Does an explicitly more dovish Fed tone down short-term volatility here? Our risk range model actually implies it could as the top-end of our range on front-month VIX no longer has a 4-handle in front of it (range still elevated, but 22-36).

FOREIGN CURRENCY

Down Dollar = Up Yen = Nikkei Down (another -2.4% overnight), so not everyone is a winner. Risk ranges are narrowing though as volatility across asset classes does this morning (risk range for EUR/USD narrows to $1.10-1.14).

RATES

UST 10YR dropped to 2.11% on the slowest rate of change in Non-Farm Payrolls since the Labor Cycle gains peaked in FEB, then back up this morning to 2.15% with Spanish 10YR +7 basis points approaching parity with UST at 2.14%.

 

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

Asset Allocation

CASH 68% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 28% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

The franchisees voted YES on the proposal to launch All Day Breakfast nationwide at all 14,318 U.S. locations. This is a very important, monumental move by CEO Steve Easterbrook. It will define his legacy as the CEO that changed McDonald's (and the rest of the industry) for many years to come. In 2016, if MCD (with all day breakfast and an improved value message) can drive same-store sales up by 5%, the system will generate $1.9bn in incremental system-wide sales. 

 

As noted in our survey we released on July 27th, it is evident that All Day Breakfast (ADB) will be a game changer for the company. Breakfast is the single most requested item by McDonald’s customers. Listening to the customer is a tried and true way to succeed.

PENN

Following our recent visit to Plainridge and meetings with senior management, we reiterate our positive Penn National Gaming thesis.  Stability in regional markets provides good earnings visibility while expected strong contributions from Plainridge and Jamul next year should provide a nice 2 year growth story.

 

Regional gaming likely cooled off in August following a strong July.  While that could provide some consternation as the states begin releasing August gaming revenues later this week, the YoY slowdown is more related to quantitative factors rather than the health of the regional gaming customer.  September should quickly provide evidence of that.

TLT

The labor market peaks late cycle and the trend in key employment data suggest things are going from great to good (marginal changes matter). The ADP employment report showed a sequential acceleration, printing +190K vs. +185K in July. But to be clear, this series peaked at over +200K additions in the first couple of months of 2015. Initial jobless claims bottomed about six weeks ago. The trend in that series is moving back to the all-important 300K level. While the headline NFP number was a bomb on Friday, printing +173K for Aug. vs. estimates for +215K, the trend is also turning. This series also peaked back in February on a YoY rate-of-change basis.

 

Why do we point to all of this growth-slowing data? Because it’s meaningful.

  • As we have mentioned repeatedly Central Banks take a reactionary policy response to the data. The market is becoming more efficient at getting in front of policy the longer we venture into this modern-day central policy experiment
  • When forward-looking growth expectations are taken down, the back end of the Treasury curve flattens (this is good for TLT and EDV)
  • In reaction to more dovish policy monetary policy measures, the market likes gold over dollars coming out of central policy events

Three for the Road

TWEET OF THE DAY

I don't chase - our call was to cover the Transports $IYT and some shorts on Friday's red 

@KeithMcCullough 

QUOTE OF THE DAY

The essential part of creativity is not being afraid to fail.

Edwin H. Land

 

STAT OF THE DAY

On average, deciding to fly Spirit added 11 minutes to a person’s total flight time between July 2014 and June 2015.