CLIENT TALKING POINTS
JAPAN
The #BeliefSystem in Japan has turned into a certified train wreck. The Nikkei 225 smashed back into crash mode (> 20% decline from the global equity bubble highs of July 2015) down -3.6% overnight as the Yen ramped +2.9% vs. USD – now what?
UST 10YR
We wouldn’t say smashed, but definitely one of the better days for the bulls (if you’re long the Long Bond, Utes, etc.) as the 10YR Yield backed off right where it should have (top-end of our immediate-term 1.70-1.95% risk range)… U.S. GDP slowing report up next, and then the nastier GDP slow-down report for Q2 deep into the summer time.
COPPER
The Doctor doesn’t seem to be into believing the “reflation” trade (not a TREND) as much as Oil has – down another -0.4% this morning after failing to breakout of the March highs; Chinese, European, and Japanese demand have not “bottomed.”
*Tune into The Macro Show with Darius Dale 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 | 59% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 3% | |
| FIXED INCOME | 32% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
FLASHBACK | Rickards to McCullough: Central Planners Destroying America https://app.hedgeye.com/insights/50557-flashback-rickards-to-mccullough-central-planners-destroying-americ… @JamesGRickards
@KeithMcCullough
QUOTE OF THE DAY
We must never allow other people’s limited perceptions to define us.
Virginia Satir
STAT OF THE DAY
Pablo Picasso's 1955 painting, Les femmes d'Alger (Version O), sold for $179,365,000 at Christie's auction house in New York in 2015 setting a new world record for the most valuable work of art sold at auction.
