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Client Talking Points

U.S. DATA

Let’s not forget we had a trifecta of “misses” on Friday with Industrial Production and Producer Prices (PPI) in recessions at -1.8% and -1.0% year-over-year, respectively (and control group for Retail Sales only +1.5%). The U.S. 10YR Yield broke 2.0% intraday (and should have on that data) and GDP is a lot slower than consensus (our favorite Macro Long idea remains the Long Bond).

SECTORS

U.S. Equity Sector Styles continue to reflect #Recessionary expectations accelerating, with Utilities (our favorite sector currently) +0.7% last week (+0.3% year-to-date) and Basic Materials -4.5% on the week (-11.9% year-to-date) and Financials -3.1% on the week (-10.1% year-to-date) underperforming what’s an already -8.0% year-to-date S&P 500.

DAX

They’re bouncing the DAX (again) +1.8% this morning, but don’t forget both Germany and Spain remain in #crash mode (-22% and -27%, respectively vs. 2015 highs). We’ll see what ECB President Mario Draghi can do on Thursday – whatever he thinks he can do is probably U.S. Dollar bullish (Euro bearish) and deflationary, in Dollars.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 22% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
XLU

We added Utilities (XLU) on the long-side last Friday as the market continued to pummel everything we haven’t liked (high debt, high beta, and small-cap stocks leveraged to inflation expectations) – Utility stocks are low-beta, slow-growth bond proxies which is why they are by far the best relative performer year-to-date.

 

XLU is outperforming the S&P 500 by +7% and remains flat on the year. Friday’s large swath of data echoed what we have been saying for a while now on the deflationary risk of an industrial recession.

GIS

GIS led a $3 million funding round for kale chip maker Rhythm Superfoods. Although this is not a big deal and will most likely never make a strong impact to top or bottom line, it marks a changing in the tide for management thinking. They are making a distinct effort to delve deeper into the natural and organic category which will help them a lot in the long run.

 

Although the overall market has been atrocious year to date, down roughly -8%, GIS with its low beta, big cap, style factors has held in, down just -5%. We continue to like General Mills as a LONG, especially during the tumultuous times in the market.

TLT

With growth continuing to slow and volatility breaking out to the upside across asset classes, we expect the unwinding of a record amount of corporate credit leverage to continue. We’d put that deleveraging in the third or fourth inning currently. Credit spreads will continue to widen. That's why you're long TLT (and short JNK).   

Three for the Road

TWEET OF THE DAY

The Unintended Consequences Of ZIRP On Commodities https://app.hedgeye.com/insights/48514-commodities-and-the-unintended-consequences-of-the-fed-s-zirp… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

I have decided to stick with love. Hate is too great a burden to bear.

Martin Luther King Jr.

STAT OF THE DAY

President Obama is planning to insert $4 billion into the 2017 budget for a 10-year plan to support and “accelerate” vehicle automation projects (self-driving cars).