CLIENT TALKING POINTS
Reflation
With USD signaling immediate-term TRADE oversold this week, did we see the final push/capitulation/chase in all things Down Dollar Dovish Fed, or is reflating the former bubble just getting started? Sounds like a Q3 Hedgeye Macro Theme in the works… Oil +41% in the last 3 months but Copper -6.4% - demand?
Russell
We didn’t think we’d get yet another shot at shorting the Russell closer to 1200, but we get things wrong all of the time. While it hasn’t been wrong to be short the Russell from this time last year (RUT still -8.2% from #TheCycle high), it’s been dead wrong for the last month. Short more here with immediate-term downside to where it started 2016.
Global Equities
We know. When trying weave the “global demand has bottomed” narrative about US stocks, you have to ex-out things like Japanese and German Equities (and their bond yields hitting all time lows) – small details we're sure, but both Nikkei and DAX down another -1% today and down -20% and -19%, respectively, from last year’s highs.
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 | |
|---|---|---|---|---|---|---|
| 6/8/16 | 74% | 0% | 0% | 4% | 14% | 8% |
| 6/9/16 | 69% | 0% | 0% | 5% | 16% | 10% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 6/8/16 | 74% | 0% | 0% | 12% | 42% | 24% |
| 6/9/16 | 69% | 0% | 0% | 15% | 48% | 30% |
THREE FOR THE ROAD
TWEET OF THE DAY
Cartoon of the Day: Squirrelly app.hedgeye.com/insights/51529… via @Hedgeye
@KeithMcCullough
QUOTE OF THE DAY
“To be prepared for war is one of the most effective means of preserving peace.”
-George Washington
STAT OF THE DAY
LeBron James scored 32 points last night in the Cavaliers victory over the GS Warriors.
