CLIENT TALKING POINTS
USD
The USD is signaling an immediate-term higher low (94.01 on USD Index) for the 1st time in 3 months as both the S&P 500 and Copper signal longer-term lower highs (at 2106 and $2.31/lb, respectively). Hence asking ourselves where “reflation” vs. #Deflation goes from here?
OIL
Oil is having a heck of a time convincing us it can breakout above our intermediate-term TREND level of $46/barrel and from a futures/options positioning perspective, the Long Oil/Gold vs. bearish USD position hasn’t been this stretched all year either.
EUROPE
European equity markets are literally begging for Down Euro (Up Dollar) as the economic data continues to slow from its 2015 cycle peak, so we’re not as ready to re-short Spain/Italy/Germany until we hear Yellen’s latest storytelling on USD/Rates. Mario Draghi, meanwhile, has been asked to testify in front of German Parliament for the 1st time; ‘explain ze heli-copter money, heir Mario.’
*Tune into The Macro Show with Hedgeye CEO Keith McCullough and Demography Sector Head Neil Howe live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
MCD
McDonald's (MCD) released earnings Friday reporting strong numbers across every important metric. Consider, for example, Q1 EPS $1.23 versus FactSet's consensus estimate of $1.16. Same-store sales in the U.S. were +5.4% vs consensus +4.4%. Revenue in the U.S. was $2.02B vs consensus $1.98B. Company-operating margin was 15.4% vs consensus 14.9% and year-ago 14.3%. We are sticking with our $150 target and believe that $7.00 in EPS for 2017 is not out of the question.
CME
CME Group (CME) which reports on April 28th still has the opportunity for an earnings beat with the +13% year-over-year volume increase coinciding with a +2% increase in pricing power. We have a 1Q16 estimate at $1.18, +3% ahead of consensus. CME stock has positively reacted on earnings the past 5 announcements, rising between +1.5-3.7%.
TLT
The market is currently pricing in a rate hike but not until … late 2017. So if you’re looking for reasons to buy the market at all-time highs, don't expect a boost from incremental Fed policy. To be clear, the dovish Fed commentary of late is a direct result of U.S. growth slowing. Friday’s manufacturing PMI continued its downward trend (it peaked in rate of change terms in August 2014). Clearly, the market gets decelerating growth, which is why Utilities (XLU) are leading equity sector divergences YTD (+9.3%) and the U.S. Treasury 10-year yield down 0.35% over that same period. (That translates into TLT +6.5% and ZROZ +10.2% year-to-date.)
With that being said, the alpha on our long utilities and Long Bonds (TLT & ZROZ) vs. short Junk Bonds (JNK) position has gone against us in the last two months. Notably, we have no direct exposure to commodities or commodity-related sectors, but being short of JNK amidst a huge rally in commodities has not been a good position. Much of the beaten down resource-leveraged credit has rallied.
Asset Allocation
| CASH | 58% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 6% | |
| FIXED INCOME | 30% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
VIDEO: You’re ‘Crazy’ Buying Stocks Now https://app.hedgeye.com/insights/50488-mccullough-you-re-crazy-buying-stocks-now…
@KeithMcCullough
QUOTE OF THE DAY
You can be comfortable or you can be courageous. But you cannot be both.
Dale Partridge
STAT OF THE DAY
There are 293 ways to make change for a U.S. dollar.
