CLIENT TALKING POINTS
Liquidation Risk
Bloomberg this AM: hedge funds have lost 1.8 percent this year, according to Hedge Fund Research's global index, the poorest performance since 2008. The industry had net outflows of $16.6 billion in the past two quarters, the most since 2009, according to HFR. In 2015, 979 funds closed, more than any year since 2009, according to the research firm. To the extent redemptions and closures accelerate, expect to see crowded names and sectors like Kraft, Time Warner, Consumer Discretionary and Tech take a hit, while under-owned names and sectors like Utilities, Energy and Materials continue to thrive.
Durable Goods
Headline Durable Goods orders jumped +3.4% MoM and improved to +1.9% YoY but the internals were less sanguine with the bulk of gain stemming from the +65% MoM increase in commercial aircraft & parts, which is most aligned with what actual households buy - rose +0.6% MoM but remains down -.4% YoY. Meanwhile, Core Capital Goods fell MoM for a 3rd consecutive month, dropping -0.8 sequentially and holding at -5% YoY - continuing the epic run of declining capital spending with negative year-over-year growth in 15 of the last 16 months.
#UKSlowing
The Financial Times was out w/ a piece this morning citing the risk to the FTSE All-Shares Index due to the downturn in the U.K. economy, which we’ve been forecasting since late last year and is being corroborate by every key category of high-frequency data slowing on a trending basis. This mainstream media’s first mention of economic risk to U.K. assets that doesn’t have anything to do with Brexit. Expect such headlines to accelerate even beyond next month’s likely “remain” vote.
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 | |
|---|---|---|---|---|---|---|
| 5/25/16 | 58% | 2% | 0% | 10% | 28% | 2% |
| 5/26/16 | 58% | 2% | 0% | 10% | 28% | 2% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 5/25/16 | 58% | 6% | 0% | 30% | 85% | 6% |
| 5/26/16 | 58% | 6% | 0% | 30% | 85% | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
Had an interesting discussion on The Macro Show with @KeithMcCullough!
@HoweGeneration
QUOTE OF THE DAY
"There are three types of baseball players: those who make it happen, those who watch it happen, and those who wonder what happens."
-Tommy Lasorda
STAT OF THE DAY
John Kruk batted exactly .300 over his 10 year MLB career. In his rookie season, he batted .309
