CLIENT TALKING POINTS
UST 10YR
Friday’s Yellen QA at Harvard was easily her most hawkish of the year – she said she’s “probably” going to raise in June or July based on her forecast. Since her forecast has always been the risk, there’s not a lot we can own into her making another policy mistake (tightening into a slow-down like she did in DEC); hence my sell signals in Treasuries, Utes, etc. Friday.
Copper
0.6% this am -> Dollar Up, Rates Up deflates the “reflation” – Gold gets this too. Come June/July we can’t see why markets won’t look like they did by the end of DEC and through JAN. If you have Hedgeye’s GDP and profit cycle forecasts (Q2 will be the worst – Q1 was not the “bottom”), you might have our view of 1-3 month risk here.
VIX
Easiest call to make on all of this is raise cash and expect front-month equity vol to bounce where it has every time reflation has deflated (12-13 zone)… in our asset allocation model I am going from 49% Cash (2 weeks ago post the equity selloff) to 77% this morning. Many thanks to Janet for confusing what was a somewhat investable situation.
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 | |
|---|---|---|---|---|---|---|
| 5/30/16 | 58% | 2% | 0% | 10% | 26% | 4% |
| 5/31/16 | 77% | 0% | 0% | 6% | 11% | 6% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 5/30/16 | 58% | 6% | 0% | 30% | 79% | 12% |
| 5/31/16 | 77% | 0% | 0% | 18% | 33% | 18% |
THREE FOR THE ROAD
TWEET OF THE DAY
A Few Brief Thoughts On Janet Yellen's Speech Friday: app.hedgeye.com/insights/51267… @Hedgeye
QUOTE OF THE DAY
"Nature does not hurry, yet everything is accomplished"
-Lao Tzu
STAT OF THE DAY
Stephen Curry of the Golden State Warriors scored 36 points in last nights game 7.
