This note was originally published at 8am on June 12, 2015 for Hedgeye subscribers.
“I thought so hard I got a headache.”
Oh, look – the US 10yr Yield just dropped back to where it started the week (2.39%). Nothing must have happened this week!
BREAKING: “Bond Selloff Could Cause Headache For Fed” -Reuters
Back to the Global Macro Grind…
After seeing the yield quintuple in a month, what’s a German Bund Yield (pronounced Boo-nd) dropping -16% (10yr 0.86% this morning vs. 1.03% yesterday) in 24 hours amongst central planning friends?
Germany’s almighty President of the Bundesbank (as in the place where they make the Bunds), Jens Weidman, told the European press yesterday that recent volatility in the European Bond Market was not “exceptionally high.”
It’s a good thing that the biggest 1-month percentage move ever in Global Bond Yields and the worst month-to-date for sovereign bonds in over 30 years isn’t exceptional.
I had one. Now I’m fine. I’m about to get on a plane from LA to NYC. Then it’s London from there. I’m looking forward to hearing many more of the creative narratives on what, precisely, is going on out there in bond yield terms.
With all this bond market talk, I haven’t spent enough time keeping you up on Global Equity markets this week (they don’t cease to exist), here’s what I’m thinking:
- Japanese Stocks (Nikkei): +4.0% month-over-month and still our favorite International Equity allocation
- Chinese Stocks: to infinity-and-beyond (+17.4% month-over-month) even though FXI is breaking down
- South Korean Stocks (KOSPI): down for the 8th day in the last 10 – must be a global #growthaccelerating signal
- Indian Stocks (BSE Sensex): barely up on the bounce this morning – still bearish, -2.1% in the last month
- Mongolian Stocks (yep): +12% month-over-month; I hope you nailed that
- UK Stocks (FTSE): +0.3% this morning to +2.5% in the last month; Top 3 International Equity allocation
- German Stocks (DAX): big bounce yesterday, but still -1.1% m/m and I’m not buying this dip
- Greek Stocks (Athex): -2.2% this morning, -2.9% m/m, and -38.4% y/y #GongShow
- Polish and Russian Stocks: -6.5% and -10.5% month-over-month, respectively (I don’t like either)
- US Stocks (SP500): +0.17% yesterday and +0.46% in the last month – fair fight; bullish ahead of the Fed
Sorry. I had to mention the Fed and bond market again in order to say #bullish on US Stocks (SPY). It’s all one and the same call. If the Fed alleviates the headaches next week (just reiterates what they’ve been saying), you probably buy everything (on red).
Not Mongolian stocks – they’re overbought. But if the Fed knocks the US 10yr Yield back to where it was only 12 days ago (2.10%), I certainly wouldn’t want to be short bonds or any US stock that looks like a bond (REITS, Utes, etc.).
In US Equity terms, here’s what we still like the most in terms of net LONG asset allocation:
- US Healthcare Stocks (XLV)
- US Housing Stocks (ITB)
- Restoration Hardware (RH)
You mean you’re still not long RH? Ah, that’s because it looks “expensive”, right? Well, it’s my All-Star Partner, Brian McGough’s, birthday today and I wanted to give him a shout-out for staying with what’s been a world class research call.
*Note to the valuation experts:
- “Expensive” stocks with high short interest get more expensive when they deliver on the growth story
- “Expensive” macro exposures (like Treasuries) get more expensive when growth slows
- “Cheap” gets cheaper when a company misses and your boss blows it out due to his/her P&L headache
Oh, and if your stock is expensive and your CEO sucks – just fire/remove him like Twitter (TWTR) did this morning and you get that pop. You know – like when you try so hard that nothing is working.
Then you stop doing that. And things pop! My head feels better now. Enjoy your weekend.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.14-2.51%
Oil (WTI) 57.68-61.91
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer