Dovish Fed Meeting?

Client Talking Points

USD

The U.S. Dollar Index closed on its low for the week (-1.1% on the week) and is seeing follow through selling this morning vs. both Euros and Yens. What’s most interesting about this to us is that on 30-day correlation, SPX has a POSITIVE correlation to USD of +0.8 (meaning a Dovish Fed could be bad for stocks).

JAPAN

Down Dollar is definitely bad for Japanese Stocks – that INVERSE correlation has not changed; Yen +0.3% took another -1.6% out of the Nikkei overnight – it’s -12.5% in the last month with the U.S. Dollar -2.7% (and Yen +3.8%).

UST 2YR

Yield tested a “breakout” above 0.75% for the 6th time in 6 months last week… and failed; back down to 0.71% on Dovish Fed spec this morning and, with Fed Fund Futures this low, we still think the Fed could train wreck macro markets if they tighten.

 

 

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

Asset Allocation

CASH 70% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

MCD is one of Sector Head Howard Penney's favorite names. He thinks McDonald's is finally emerging from the doldrums and is doing everything they need to do to fix the company domestically.

 

Penney believes there is not only a huge inflection point coming for the profitability of the company, but also for their sales. He thinks this means Wendy’s, Jack In the Box, Sonic will suffer a bit as MCD begins to take its market share back.

PENN

Bottom Line here? September regional gaming revenue growth should accelerate meaningfully from August and provide a catalyst for the stock. Our bull thesis on PENN appears very much intact.

TLT

In a higher volatility, growth-slowing environment, you want low-beta exposure (stocks that move less than the market) and a larger allocation to long-term Treasuries.

 

In the recent Macro Overlay video series exclusively for Investing Ideas subscribers, Keith rank-orders our top investing ideas positions from a fundamental macro and style factor perspective (low-beta, big cap liquidity, slower growth):

  1. Treasuries (TLT)
  2. “Something that looks like Treasuries” (EDV)
  3. Gold (GLD)
  4. Low-Beta, Big-Cap liquidity: McDonalds
  5. Low-Beta, Big Cap Liquidity: General Mills

Three for the Road

TWEET OF THE DAY

McGough: Why Restoration Hardware Shares Are Headed Even Higher | $RH https://app.hedgeye.com/insights/46315-mcgough-why-restoration-hardware-shares-are-headed-even-higher-rh… via @HedgeyeRetail cc @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

Creativity is thinking up new things. Innovation is doing new things.

Theodore Levitt

STAT OF THE DAY

According to the American Pet Products Association Americans spent $58.04 billion on their pets last year.