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Can Trump Unify The GOP? ... & The Clinton Super PAC

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

UNITY WITHOUT UNANIMITY

Can Trump Unify The GOP? ... & The Clinton Super PAC - paul ryan 23

 

For anyone expecting/hoping Trump would storm out of the RNC and take up an anti-Ryan Twitter rant, we're sorry to disappoint you.  For love of country, party, and dislike of both Democratic candidates, Speaker Paul Ryan and Donald Trump let the healing begin at yesterday's meeting on Capitol Hill without agreement on a number of core policy issues that divide them.

 

With the elections this fall impacting all three branches of government, we believe Ryan will gingerly board the Trump train to ensure that the Republicans are in the best possible position to defend his majority in the House as well as retain the Senate.

 

As Speaker of the House and the highest ranking elected Republican, we're not sure he ever had much choice.  We're also pretty sure not a day goes by that Ryan doesn't miss his old job as Chairman of the Ways & Means Committee - passing comprehensive tax reform is easy compared to navigating this election season.  

ALLIED AERIAL ATTACK

While Hillary Clinton has her hands full battling both Bernie Sanders and Trump, her supporters (read=superPACs) aim to win the war by defining Trump and running up his negatives on their terms - as he launches daily attacks on her.  The Clinton-allied superPACS are not about to make the same mistake as Trump's primary opponents by waiting too long to make the case against him and have taken to the airwaves with ad campaigns targeting the presumptive nominee. 

CLINTON KEEPS HIS COOL, FOR NOW

Can Trump Unify The GOP? ... & The Clinton Super PAC - bill clinton 23

 

While we expect the ultimate focus for the next six months to be Donald Trump vs. Hillary Clinton, Donald Trump vs. Bill Clinton has the potential to become the nastier of the two battles.  Trump has already pointed to Bill Clinton's pass indiscretions and is labeling Hillary Clinton "an enabler."  Trump was more than happy to drag family members into the mud during the primaries and we expect that to continue as he pivots to the general election.

 

One reporter put it recently, "Trump stoops to levels few are willing to stoop to. And often, this elicits an unwise overreaction."  Bill Clinton is still a highly popular, global statesman and, despite his history, is fiercely loyal to his wife and is quick to defend her when attacked.  The big question is whether he can or will maintain his statesman-like cool as Trump drags a graveyard full of personal skeletons out of the Clinton's closet. 


Is U.S. #GrowthSlowing? Just Ask The 10s/2s Yield Spread

Takeaway: The 10s/2s yield just spread hit 2007 levels.

Is U.S. #GrowthSlowing? Just Ask The 10s/2s Yield Spread - yield spread today


A Special Retail Industry Update From Sector Head Brian McGough

On The Macro Show this morning, Hedgeye Retail analyst Brian McGough gave a sweeping overview of the many earnings misses in the sector this week. In addition to highlighting recent developments at companies on Investing Ideas, like Hanesbrands (HBI), Tiffany (TIF) and Foot Locker (FL), Brian discussed other high-conviction names he covers. Among them, his short Kohl's (KSS) thesis following it's lackluster earnings release and the subsequent -10% tumble shares. 

 

Additional topics of discussion included: why we’ve already seen more retail bankruptcies this year than in any full year in the last six; department store sales versus overall retail sales; and an update on e-commerce traffic.

 

Below is McGough's full presentation and the live Q&A with subscribers that followed.

 

 

 

Click here to access the associated slides.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.32%
  • SHORT SIGNALS 78.48%

Morning Macro Show: Credit Market Takeaways

Takeaway: Credit markets are yet another indicator of reflation reversal risk.

Watch this clip below.

 

In a clip of this morning’s macro show, we revisit #thecycle theme from our Q2 themes deck by highlighting reflation reversal risk as it pertains to credit markets:

  • Higher low in spreads? The MOVE Index has been smashed to lows not seen since 2014 and high yield OAS has retreated to 2015 avg. levels on the whole. However, the market remains well off the 2014 cycle lows in volatility and credit spreads, and historical evidence suggests we won’t be returning in the current cycle.
  • Sentiment: Real-Time indication of consensus positioning for a continuation in the reflation trade is visible in commodity leveraged credit spreads, global macro futures and options positioning, and forward-looking volatility expectations (MOVE and implieds in commodity markets)
  • Pushing on a string?: Corporate credit as a % of GDP remains at cycle highs, capital markets activity has dried up significantly, and credit extension is decidedly tightening nationwide – there is no evidence of a mini-refinancing cycle despite the 3-mth move in credit markets.
  • Consumption cycle: We won’t argue that a revaluation in “ability to pay” increases with higher commodity prices, but we expect that 2016’s wave of bankruptcies will matter for creditors, the labor market, and thus the broader consumption economy. As we’ve highlighted on a daily basis, consumption growth and labor markets peaked in Q1 2015 and are slowing into a continued corporate profit slowdown. This mix smells like incremental deflation on the margin with global macro positioning and expectations where they are currently. 

 

CLICK HERE to access the associated slides.

 


From Central Planning Shenanigans To Evaluating Hedge Fund Returns

Takeaway: Below are a selection of interesting links to stories that caught our attention (for both good reasons and bad).

From Central Planning Shenanigans To Evaluating Hedge Fund Returns - wall street sign

 

At Hedgeye, we rarely mince words in assessing Old Wall and it's media. Below are a selection of interesting links to stories that caught our attention (for both good reasons and bad). 

 

  1.  Ben Bernanke, Brookings Blogs, "Ending "too big to fail": What's the right approach?" An interesting read, if only to get up to date on the latest central planning orthodoxy surrounding "too big to fail."
  2. MarketWatch, "Fed’s Yellen says negative rates would need careful consideration." NIRP! Rep. Brad Sherman (D., California) released a letter from Fed head Janet Yellen in which she writes she cannot "completely rule out the use of negative interest rates in some future very adverse scenario."
  3. Wall Street Journal, "WSJ Survey: Economists Divided Over Next Fed Rate Increase." This one is just silly. "About 31% of economists surveyed by WSJ this month said the Fed will raise rates in June, down from 75% in April." As we Tweeted yesterday, in other words, "Faulty forecasters are uncertain about the whims of unelected bureaucrats."
  4. Reuters, "BOJ will act decisively using its 'ample' tools: Kuroda." BoJ head Haruhiko Kuroda said that the "risks to [Japan's] economy are tilted to the downside" but that the central bank will act "decisively" to achieve the 2% inflation target and reiterated that it has "ample" policy octions available to expand stimulus. Nope. Macro markets disagree. Nikkei was down -1.4% today.
  5. Clifford Scott Asness, BloombergView, "Hedging on the Case Against Hedge Funds." A thought-provoking op-ed on how best to evaluate hedge fund returns from the founder of hedge fund and asset management firm AQR Capital Management. It's as balanced an appraisal as you'll read.

The Evolving Complacency In Credit Markets

Takeaway: Complacency about the credit cycle is at YTD highs, especially in commodity-related sectors.

Editor's Note: Below is #CreditCycle analysis via our Macro team in a note sent to subscribers earlier this morning. 

 

The Evolving Complacency In Credit Markets - credit cycle

With renewed expectations for Fed intervention on growth slowing and the precedent of Central Bankers buying corporate bonds in Europe, bond market volatility expectations have been smashed.

 

The MOVE index is at a level not seen since 2014. High yield spreads have nearly returned to their 2015 averages. Energy OAS is below 2015 averages after trading +600 over that level back in Febraury, and materials and industrials spreads have nearly reverted back to 2015 levels.

 

What's changed? Expectations certainly have:

 

  1. Spreads being well-off 2014 cycle lows;
  2. Consumption rolling over; and
  3. Jobless claims picking up

 

A confluence of data suggests the cycle still cycles.

 

The Evolving Complacency In Credit Markets - credit spreads 5 13

 


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