CLIENT TALKING POINTS
Energy
1st time we've registered this signal in my Top 3 Things, but literally every equity expression of Oil/Energy is signaling immediate-term TRADE overbought this morning (XLE, XOP, OIH, Russian Stocks, etc.); reminder that what was TREND resistance for WTI ($47.07/barrel) is now support. Q: can they keep USD Down, Oil Up throughout the summer?
Russia
Forget Chinese demand continuing to slow (see this morning’s Export numbers for details), the real alpha out there next to being long real world #GrowthSlowing and Bond Proxies is in anything that looks like a commodity, including countries – that’s not a new story; that’s simply reflating the deflation (RTSI up another +0.8% this morning and +5% m/m).
UST 10YR
If reflation was real growth, the 10yr wouldn’t be setting itself up for all-time lows – but you already know that. Risk Range on UST 10yr is now 1.64-1.79% after barely trying to bounce yesterday from its jobs day bomb.
TOP LONG IDEAS
MCD
McDonald's (MCD) is testing fresh beef in 14 Dallas-area restaurants in an attempt to become a modern progressive burger company and better compete with smaller, premium chains. Part of the reason they haven’t done this in the past is because there hasn’t been enough supply of fresh beef for their demand.
The initiative will expand further to more markets over the course of the year to test both consumer perception and their supply chains ability. This could be a big move for MCD that will undoubtedly improve food quality and consumer perception of the company.
Also in the news over the last couple of weeks is MCD’s plan to move its HQ from Oak Brook to downtown Chicago. Although not important from an operational perspective immediately, it will help the company attract and retain top talent which will be beneficial overtime. MCD remains one of our top ideas in the Restaurant space.
TLT
Friday’s jobs report represented a complete shift to any renewed expectations of a June/July hike. The yield spread ended the week pinned near the bottom of the cycle low at 92 basis points (10yr-2yr yield %). And, looking at real-time rate hike expectations, the bid-yield of December 2016 Federal Funds Futures Contracts dipped 8 basis points day-over-day, implying the market’s expectations for the first rate hike is now in 2017!
GLD
That was the commentary that closed out a deflationary month of May – USD +3.1% with Gold -6.3% and the long end of the Treasury curve and the S&P roughly flat. Fast forward a week. Gold, the Treasury market, and Federal Fund futures don’t buy the hawkish rhetoric for a second.
We’ve shown our chart of the Y/Y% change in Non-Farm Payrolls numerous times, so Friday’s Jobs report was no surprise to us. Consumption and labor market strength are classic late-cycle indicators, but eventually these indicators peak and roll-over in rate-of change terms. Here's the Jobs Report breakdown:
Non-Farm payroll additions totaled +38K in May vs. +160K est. and +160K prior. While the number was a bomb for those who follow the month-to-month sequential change (which is useless), we expected the weakness. To be clear, history paints a very clear picture. NFP additions peaked in Q1 of 2015 and have since rolled over. It’s part of #TheCycle.
Asset Allocation
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 6/7/16 | 74% | 0% | 0% | 4% | 14% | 8% |
| 6/8/16 | 74% | 0% | 0% | 4% | 14% | 8% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 6/7/16 | 74% | 0% | 0% | 12% | 42% | 24% |
| 6/8/16 | 74% | 0% | 0% | 12% | 42% | 24% |
THREE FOR THE ROAD
TWEET OF THE DAY
At 1.71% UST 10yr Yield the @Hedgeye call for all-time lows as growth slows remains firmly intact pic.twitter.com/flGE3O413e
QUOTE OF THE DAY
"If you treat every situation as a life and death matter, you'll die a lot of times."
-Dean Smith
STAT OF THE DAY
Chipper Jones had 2499 at bats for the Atlanta Braves, he had 2726 hits.
