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Client Talking Points

# VOLATILITYEXPECTATIONS

The VIX index continues to be pushed lower, down -48% from the August 24th highs. OVX, the WTI equivalent, remains at a 50-handle, down -13% from its September 1st highs. The MOVE index is -10% off the August 24th highs in the VIX. The VIX suggests the FED can talk things under control. We’ll see today with the decision at 2:00PM ET and the press conference following.

#FEDERALFUNDS

Probability of a 25 basis points rate hike is at 32% this morning, which suggests a lot of repositioning as the market digests the news in the event of a surprise (What would the VIX do on that?). If not, what does it say about the strength of the U.S. economy? Slower for longer. The traditional trigger for tighter policy is aimed at extinguishing heightening inflation expectations. Yesterday’s CPI print was anything but, printing +0.2% year-over-year for AUG. and -0.1% month-over-month. 

HOUSING

Builder Confidence in September made a new post-crisis high of 62.   From a macro perspective, the gain is interesting as builder confidence has, historically, served as a solid lead indictor for consumer confidence more broadly (which has slide in recent months) and the larger economic cycle.  We continue to think the housing recovery remains early-mid or mid-cycle and the complex should remain a source of solid relative outperformance over the intermediate term. 

 

**Watch a replay of today's special Financials edition of The Macro Show with Financials analyst Jonathan Casteleyn - 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 | Why Housing May Be Set To Outperform The Broader Market https://app.hedgeye.com/insights/46379-why-housing-may-be-set-to-outperform-the-broader-market… via @HedgeyeFIG @HedgeyeUSA $ITB #markets

@Hedgeye

QUOTE OF THE DAY

If a man does not know to what port he is steering, no wind is favorable to him.

Seneca

STAT OF THE DAY

On Wednesday the Census Bureau reported that the median American household made just under $54,000 in 2014, essentially unchanged from a year earlier after adjusting for inflation. Nearly 47 million Americans are living in poverty, unchanged since the worst of the recession.