Japan, Oil and Treasuries

Client Talking Points

JAPAN

Neither did a follow through day on what looked like a classic bear-market bounce in Japanese stocks; Nikkei -2.5% overnight in what was an ugly session for Asian Equities – all the Fed has to do is no SEPT hike and the Dollar Down --> Yen Up --> Nikkei Down pattern repeats.

OIL

Oil seems to like the idea of no SEPT hike (new bull market catalyst = “higher gas prices”), +0.8% this morning  to $44.48 with a risk range that finally implies a higher-low of support > $41/barrel WTI; if the Fed fights Fed Fund futures and hikes into the slow-down, we expect every “reflation” trade to get blasted.

UST 10YR

The UST 10YR tapped 2.24% resistance yesterday and quickly backed off to 2.18% as U.S. Equities had another huge intraday reversal – it’s sad, but the Fed is still probably sitting there trying to make a game-day decision (on an injured economy) based on what SPY does – here’s the 3 month setup into the event.

 

**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 5%
FIXED INCOME 30% 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

McCullough: 1987 Redux? https://app.hedgeye.com/insights/46254-mccullough-mccullough-1987-redux… via @KeithMcCullough

#markets #stocks $SPY $VIX $QQQ

@Hedgeye

QUOTE OF THE DAY

Doing what you like is freedom. Liking what you do is happiness.

Frank Tyger

STAT OF THE DAY

According to a Reuters estimate based on the monarchy's interests in its key investment vehicle, royal estates and its trove of treasures, the British monarchy has nominal assets worth about 22.8 billion pounds ($34.8 billion).