CLIENT TALKING POINTS
UST 10YR
Most things macro (last week) queued off of what we think was another head-fake in rate hike risk. The UST 10YR Yield being up +15 basis points week-over-week was a counter TREND move to 1.90% which has since pulled all the way back to 1.82% this morning, flattening the Yield Spread to yet another year-to-date low of +94 basis points wide (10s/2s), which is an explicitly bearish GDP growth signal.
OIL
It dislocated from the Correlation Trade last week (USD +0.8%, Gold -1.5%, WTI +3.5%), but is correcting -1.1% this morning (Iran Supply comments) back below $48 with an immediate-term risk range of $45.07-50.53.
FINANCIALS
Teetering on implosion (Equities) again as USD signals immediate-term TRADE overbought vs. Euro at $1.11-1.12; Italy’s stock market is a bloody mess, -1.5% (leading losers), taking its crash to -26% since this time last year; NIRP doesn’t work.
*Tune into The Macro Show with Darius Dale and Ben Ryan live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
GLD
When Janet does have to acknowledge the deterioration in U.S. growth, we expect the policy shift to be dollar bearish on the margin. And, to the contrary, if the Fed RAISES RATES (June) into this slow-down, they’ll be the catalyst for DEFLATION (down yields) again anyway. And there’s nothing Gold (GLD) likes more than a falling dollar and falling interest rates which is why we added it to the long-side of Investing Ideas this week. Remember, this is the same week various Fed members were in public calling for a rate hike with the worst jobless claims print since 2012. #GoodLuck.
MCD
McDonald's (MCD) continues to evolve. The company's latest step is testing never frozen burgers at 14 units in the Dallas, TX area. This initiative could give them the ability to compete with better burger concepts such as Shake Shack, In-N-Out and Five Guys.
Meanwhile, there has been chatter about the lack of identity for their value platform in 2Q16. MCD is truly still in the testing phase as to what their national value message will be. We can appreciate the fact that they are testing multiple formats before fully committing.
In the meantime, the tailwind from all-day breakfast will continue to propel growth going forward, until lapping this initiative in 4Q16. We continue to favor MCD as one of the best LONGs in the market right now, due to actual growth and style factors that are friendly in volatile markets.
TLT
If you haven’t yet, you got another chance to buy long-term Treasuries at lower highs this week. If you’re already long of Long Bonds (TLT, ZROZ), stick with it. None of the relevant data released this past week suggests that growth could inflect and trend positive:
- Thursday’s Jobless Claims Report was the worst print, in Y/Y rate of change terms, since 2012, and it was the fourth consecutive week of increasing jobless claims
- Industrial Production declined -1.1% Y/Y for April, marking the 8th consecutive month of Y/Y contraction: #IndustrialRecession
Tying together a continued deceleration in growth with policy expectations, the most important callout is that our expectation for growth in Q2 is well below consensus and Fed expectations (which have been horribly inaccurate).
Asset Allocation
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 5/22/16 | 49% | 6% | 0% | 10% | 30% | 5% |
| 5/23/16 | 50% | 6% | 0% | 8% | 30% | 6% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 5/22/16 | 49% | 18% | 0% | 30% | 91% | 15% |
| 5/23/16 | 50% | 18% | 0% | 24% | 91% | 18% |
THREE FOR THE ROAD
TWEET OF THE DAY
REPLAY | "About Everything" w/ Demographer @HoweGeneration
#Millennials: Are We There Yet?
@Hedgeye
QUOTE OF THE DAY
Thousands of candles can be lighted from a single candle, and the life of the candle will not be shortened. Happiness never decreases by being shared.
Buddha
STAT OF THE DAY
U.S. Credit card debt is set to hit $1.0 trillion this year, the highest level since 2008.
