Client Talking Points
With the S&P 500 down -3.6% for DEC, front-month VIX is back up at 20.70 – more importantly, it’s risk range is now 17.84-24.83 and this breakout on our TREND duration has been brutal for High Beta as a Style Factor, which was down another -2% last week.
Spain is down hard in a generally up tape for European Equities this morning. Post the Spanish election the IBEX is down -2% (-7.5% in the last month) while the 10YR Yield for Spain is up +11 basis points to 1.80%; we still think ECB President Mario Draghi wants to snap Euro $1.05 vs. USD.
Oil is down another -0.6% this morning to $34.49 after deflating another -3% last week. #Deflation is not “transitory”, it’s been pervasive and since the U.S. is in an industrial recession right now, it’s finding its way into revenues/earnings for 1H 2016.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
|FIXED INCOME||15%||INTL CURRENCIES||10%|
Top Long Ideas
Federated Investors (FII) profitability got a boost last week as the Fed boosted short term rates for the first time in 7 years. Even the slight 25 basis point hike improves profitability in the firm’s leading money fund business by +30% into the New Year.
In essence, the firm rolls 30-day paper throughout the short term fixed income curves and the new higher yields forthcoming into 2016 will allow the company to claw back some of the waived fees it has extended to its client base in money funds. Year-to-date the company has waived over $300 million in fees. With that firmly in the rearview, it becomes an opportunity set as FII gets higher yield from cash products next year.
In the financial sector, FII is the most asset sensitive name we cover, meaning it benefits most from even marginal interest rate hikes.
We have to give Restoration Hardware Chairman and CEO Gary Friedman props for his approximately nine minute segment on Cramer last week. Let's face it, him going on what's arguably the most volatile and biased financial media platform, unscripted, is not what we wanted to see. The risk of fireworks was high.
But he capped off a successful day RH (CFO and IR) had on the investor conference circuit by focusing on the real value drivers at Restoration Hardware (RH) -- growth in product concepts, and RH's real estate transformation. The appearance was planned well before the earnings release, by the way, coinciding with a business-focused trip to NYC. All-in, it was a positive event for the stock.
Now that the Fed finally hiked federal funds by 25 basis points into a late-cycle slowdown, the fact that TLT was up 1.8% (Wed-Fri.) on “lift-off” should be concerning to the growth accelerating bulls. After the dovish hike, the U.S. Treasury 10-Year Yield (THE GROWTH EXPECTATION PROXY) was down 10 basis points (2.3% to 2.2%). And yes, the most telegraphed rate hike ever was dovish.
Just look at the Fed’s projections and the language in the FOMC's statement. Yellen, essentially, acknowledged what we have said for ~ a year and a half now:
Three for the Road
TWEET OF THE DAY
The Playbook (when it mattered) | Fed Day Live with Hedgeye CEO Keith McCullough https://app.hedgeye.com/insights/48171-must-see-fed-day-live-with-hedgeye-ceo-keith-mccullough…
QUOTE OF THE DAY
A stumbling block to a pessimist is a stepping stone to an optimist.
STAT OF THE DAY
764 million TVs worldwide were tuned in for a minute or more of the final 2015 Women’s World Cup, it is also the most watched soccer broadcast ever in the U.S.