Oil, Russell 2000 and VIX

Client Talking Points

OIL

Oil was leading the no volume “reflation”/squeeze last week, WTI was up +5.7% week-over-week, but is straight back down -1.7% this morning after tapping the top-end of our immediate-term $34.97-38.33 risk range. MLPs were up +14.4% last week, but still down -32% year-to-date.

RUSSELL 2000

Small cap, debt leverage, and big beta were the best Style Factors in the U.S. stock market last week (and have been the worst all year), so plenty of selling opportunities in small caps this morning with the RUT down -4.1% year-to-date and downside to 1109.

VIX

Since the AUG breakout in equity volatility (prefaced by a credit signal that’s real), raising cash and lowering your portfolios exposure to illiquidity and leverage has been very smart at front month VIX 14-15; here’s another gift.

 

*Tune into The Macro Show at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 64% US EQUITIES 2%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
FII

Federated Investors (FII) profitability got a boost 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 2 weeks. 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

In case you were looking for Style Factors that crushed it last week – the Top 3 gainers were the Top 3 #Deflations of 2015!

  1. High Beta Stocks were +3.5% last week to -12.0% YTD
  2. High Debt (to EV) Stocks were +2.9% last week to -10.9% YTD
  3. Small Cap Stocks were +3.2% last week to -12.4% YTD

*Mean performance of Top Quartile vs. Bottom Quartile (SP500 Companies)

 

In other words, the no-volume squeeze had the smaller cap Russell 2000 outperform the large cap Dow at +3.0% week-over-week vs. 2.5%. Heading into the final week of the year, the Dow and Russell are down -1.5% and -4.1%, respectively.

 

In a slower-for-longer secular growth world, you should pay more for the organic growth that you can find. But, more importantly, you should realize that “cheap” has the illusion of “cheap” because the U.S. economic cycle is slowing alongside the secular. 

Three for the Road

TWEET OF THE DAY

What To Watch: The Fed, Oil And U.S. Dollar https://app.hedgeye.com/insights/48256-instant-insight-what-to-watch-the-fed-oil-and-u-s-dollar… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Take time: much may be gained by patience.

Latin Proverb

STAT OF THE DAY

The CRB Commodities Index was up +2.3% on the week to down -23.4% year-to-date.


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