Macro Reversals

Client Talking Points

UST 2YR

After 6 tries in 6 months, the UST 2YR Yield ripped through 0.75% resistance to 0.82% - what does it mean? Moreover, what did it mean when it ripped to this same level in OCT 2011, before crashing to 0.16%? Looked like a big asset allocation move to us – German and Swiss 10s at their 1 month highs as well – we’re keeping exposure low into this very event risk Fed day; reacting at extremes has not worked.

VOLATILITY

Ironically, nothing in equity volatility space really changed on the latest U.S. stock market rip. Our immediate-term risk range for VIX is still implying 21-29 and intermediate-term it’s 18-41. The rates move wasn’t driven by good economic data – and if a Fed Hike was leaked, why is Oil +1.7% this morning (and Oil & Gas stocks +1.8% yesterday)?

BETA

The most unnerving part about the equity/commodity move is that A) it still had a lot of Dovish Fed expectations embedded in it and B) it came on very slow volume (Total U.S. Equity Market Volume -8% vs. the 1 month average); bearishness (net SHORT position in SPX Index futures/options contracts) alone could have explained the pop – but there’s a lot going on here, so we’re going to wait/watch.

 

**Tune into a special Housing edition of The Macro Show with Housing analysts Josh Steiner and Christian Drake - CLICK HERE

Asset Allocation

CASH 73% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 21% 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

NEW VIDEO (1:30 min)

The Death of U.S. Exceptionalism https://app.hedgeye.com/insights/46355-mccullough-the-death-of-u-s-exceptionalism… via @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

Concentration is the secret of strengths in politics, in war, in trade, in short in all management of human affairs.

Ralph Waldo Emerson

STAT OF THE DAY

Total U.S. Equity Market Volume yesterday was down -8% and -11% vs. the 1-month and 1-year averages.