CLIENT TALKING POINTS
USD
After falling another -0.4% last week to year-to-date lows of -4.5%, the U.S. Dollar Index is signaling immediate-term oversold in my model for the first time in April (the 30-day correlation between USD and S&P 500 is -0.90).
OIL
WTI was up +8% last week after falling -7% in the week prior. This will be as important to watch as anything U.S. Equity Market Beta this week; risk range is signaling a lower-high of $39.99/barrel as Oil Volatility (OVX) signals a higher-low of 43.14.
UST 10YR
A whole lot of nothing happening from a sovereign bond market volatility perspective (Long Bond Bulls should enjoy that as it signals growth has not “bottomed”). The UST 10YR Yield was -5 basis points last week and down -55 basis points year-to-date at 1.72%.
*Tune into The Macro Show with U.S. Macro and Housing analyst Christian Drake live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
MCD
McDonald's (MCD) hit another all-time high last week. As we continue to reiterate, the company has all the style-factors that we like – high market cap, low beta and liquidity. Stick with it.
We are going to be looking at a much different company 1-3 years from now. Urgency has been instilled from the top down by new CEO Steve Easterbrook. He wants more speed and is encouraging people to get things done faster. The food and experience provided to the customer will greatly improve over the coming months as “Experience the Future” is implemented across the system. It won’t be instantaneous though, as MCD has a lot of work to do around changing the perception to bring back customers it may have lost.
Things like All Day Breakfast, responsibly sourced ingredients, and bringing back the value proposition will lead to increased sales and customer satisfaction. While this company is too big to be completely fixed overnight, management has the right plans in place. We are confident in where they are headed.
CME
We recently completed a granular, deep dive study demonstrating that all classes of volatility including equity, fixed income, and FX have been managed lower by a U.S. Central Bank engineering a historically abnormal quantitative easing policy over the past 7 years.
What does this mean and what are the implications? Well, with Quantitative Easing over (for now) and the Federal Reserve on a rate hiking policy path (for now), for the first time in a long time there is a reason to hedge bond and equity exposure. CME is one of the few venues that allows both institutional and retail investors to do exactly that. The company manages the entire Treasury futures curve and also most of the equity index futures in the U.S.
In this late cycle economic environment, CME Group (CME) has a solid earnings trajectory. The exchange continues to benefit from all 3 legs of the exchange stool including incremental volatility; incremental participants coming into its markets; and also new product introduction. Over the course of the next 12 months, we think the earnings opportunity will jump and the path to more than $5 per share in earnings will become more obvious.
TLT
We outlined our expectation and outlook moving into Q2 last Thursday in our quarterly macro themes presentation for institutional clients. The first of the three themes was labeled #TheCycle:
“With the recessionary industrial data ongoing, employment, income and consumption growth decelerating, corporate profits facing a 3rd quarter of negative growth and Commercial and Industrial credit tightening, the domestic economic, profit and credit cycles are all past peak and continue to traverse their downslope. With this cyclical backdrop, the U.S. economy faces its toughest GDP comp of the cycle in 2Q16”….
The takeaway is that the economy faces a difficult GDP comp (growth rate) in Q2 within the continued late-cycle slowdown.
Asset Allocation
| CASH | 65% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 7% | |
| FIXED INCOME | 25% | INTL CURRENCIES | 3% |
THREE FOR THE ROAD
TWEET OF THE DAY
*NEW VIDEO
The latest installment of @HoweGeneration's "About Everything" https://app.hedgeye.com/insights/50184-about-everything-a-perfect-storm-of-trends-points-to-less-interest-i… @KeithMcCullough
@Hedgeye
QUOTE OF THE DAY
Gratitude is a currency that we can mint for ourselves, and spend without fear of bankruptcy.
Fred De Witt Van Amburgh
STAT OF THE DAY
Approximately 7.6 million companion animals enter animal shelters nationwide every year. Of those, approximately 3.9 million are dogs and 3.4 million are cats.
