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Client Talking Points

OIL

Oil led the bounce in U.S. equities yesterday – we can no longer count how many of these counter-TREND head-fakes we’ve had in the last 18 months but the immediate-term risk range still implies lower-for-longer at $35.04-37.07 WTI.

RECESSION

Yep. You got the recessionary industrial production print of down -1.2% year-over-year for NOV last week and you’ll get another recessionary Durable Goods print this morning – we signaled to short industrials (XLI) and CAT and WAB again on green yesterday.

UST 10YR

The UST 10YR Yield bounced to 2.25% with U.S. stocks having their 13th up day in the last 33, so we’re gearing up to make a big asset allocation move back to my max in the Long Bond (TLT) anywhere north of 2.30%.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough and Restaurants & Consumer Staples analyst Shayne Laidlaw live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 66% US EQUITIES 2%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 17% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
FII

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.

RH

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.

TLT

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:

  • “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”
  • “Market-based measures of inflation expectations remain low; some survey-based measures of longer-term inflation expectations have edged down”
  • “Net exports have been soft”
  • ... And on the Fed’s forward-looking economic projections:
  • The Fed kept 2016 GDP estimates unchanged, and downwardly revised 2017 to 2.0-2.3% from 2.0-2.4%.
  • 2016 PCE Inflation was downwardly revised to 1.2-1.5% from 1.5-1.8%. 

Three for the Road

TWEET OF THE DAY

McCullough: The Three Signs of Coming Recession https://app.hedgeye.com/insights/48213-mccullough-the-three-signs-of-coming-recession… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Knowledge speaks, but wisdom listens.

-Jimi Hendrix                   

STAT OF THE DAY

Today in 1823, The Night Before Christmas was published, anonymously.