CLIENT TALKING POINTS
JAPAN
#Pattern: economic data disappoints = promise of more “stimulus” --> Nikkei +7.7% overnight in its best day since OCT 2008. Never mind what the OCT 08’ bear market bounce signaled, of the Top 6 moves (ever) in Nikkei 3 of them came in 1990 as the U.S. was entering recession and 1 was in 1987 where everything bounced, after the crash.
COPPER
Classic Bear Market bounce in Copper (+5% yesterday, but still -10% in the last 3 months) after signaling oversold. Everything from KOSPI to the Dr. Copper looks the same “off the lows” – bear market bounces generally bounce higher than bull market rally days do.
UST 2YR
Can you spot the noise within the consensus expectation? This is the 6th time in 6 months that the short-end of the curve has bounced to 0.75% - will it be 6 for 6 on failing here? If no (and the Fed Hikes into both a slowdown and Fed Fund Futures not expecting it), we think SPX can retest 1902, no problem.
TOP LONG IDEAS
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
Asset Allocation
| CASH | 68% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 4% | |
| FIXED INCOME | 28% | INTL CURRENCIES | 0% |
THREE FOR THE ROAD
TWEET OF THE DAY
[NEW VIDEO]
To Be Clear, The #Markets Don’t Care What You “Feel” https://app.hedgeye.com/insights/46234-mccullough-to-be-clear-the-market-doesn-t-care-what-you-feel… via @KeithMcCullough
@Hedgeye
QUOTE OF THE DAY
Success is on the far side of failure.
Thomas Watson Sr.
STAT OF THE DAY
42% of the domestic tablet market is controlled by Samsung and Apple, with Amazon’s tablets accounting for less than 1%. Amazon will be challenging Samsung and Apple by selling a 6-inch tablet for $50.
