CLIENT TALKING POINTS
UST 10 YR
Last week’s hyperventilation about the Fed’s “minutes” (from April) turned out to be yet another buying opportunity in everything Long Bond, Utes, etc. – with the UST 10yr at 1.82% this morning, all tweets are on Yellen who speaks at 1:15 EST. Remember, she is a labor economist – that makes next week’s jobs report one of the most important of 2016.
VIX
Post another no-volume month-end markup in US Equity beta (Total US Equity Volume -23% yesterday vs. its 1 month avg!) to lower highs, my front-month volatility signal says we see another higher low in VIX in the coming week – VIX risk range = 13.16-16.90; buying stocks (chasing beta) at 12-13 VIX has not worked in 2016.
Italy
Yep, Italy. One topic that I wasn’t getting asked enough about on the road (I was in California all week) is the rising probability for Europe to enter a recession in the back half of 2016. We have a Street low GDP forecast of 0.2% for Q416 for the Eurozone and we’re at negative GDP for Italy whose stock market is -0.3% this am, -3.2% m/m, and -24.1% y/y.
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 | |
|---|---|---|---|---|---|---|
| 5/26/16 | 58% | 2% | 0% | 10% | 28% | 2% |
| 5/27/16 | 58% | 2% | 0% | 10% | 26% | 4% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 5/26/16 | 58% | 6% | 0% | 30% | 85% | 6% |
| 5/27/16 | 58% | 6% | 0% | 30% | 79% | 12% |
THREE FOR THE ROAD
TWEET OF THE DAY
A Closer Look At Yesterday's Durable Goods Data app.hedgeye.com/insights/51222… via @Hedgeye
@KeithMcCullough
QUOTE OF THE DAY
"My fellow Americans, ask not what your country can do for you, ask what you can do for your country."
-John F. Kennedy
STAT OF THE DAY
Julio Urias, age 19, will make his first MLB start tonight against the New York Mets.
