CLIENT TALKING POINTS
RUSSELL 2000
If you were just navel gazing at the “Dow” (in points) yesterday, it was “up”, meanwhile the Russell 2000 closed down (again), taking its crash to -23.2% from the July high. The average peak/trough decline in the Russell 3000 (98% of U.S. stocks) is almost 35%.
JAPAN
Nikkei’s -3.7% smack-down overnight puts it in crash mode now too (down -21.2% from its July high – peaked when SPX did) as the Yen Bears take it on the chin again this morning. Singapore’s crash continues -27% and the DAX crash is not far behind at -24% (from peaks).
UST 10YR
The UST 10YR is punching in at 1.96% this morning, doing its job for us (our favorite idea is Long the Long Bond) as both #Deflation and #Recession expectations continue to get priced in. The Yield Spread (10s/2s) at 114 basis points hits new cycle lows; staying short the Financials (XLF) as JPM, BAC guidance sounded like the Fed’s (lala land) relative to economic reality.
*Tune into The Macro Show with Ben Ryan live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
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).
Asset Allocation
| CASH | 66% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 0% | |
| FIXED INCOME | 22% | INTL CURRENCIES | 12% |
THREE FOR THE ROAD
TWEET OF THE DAY
VIDEO: China Is Lying https://app.hedgeye.com/insights/48632-mccullough-china-is-lying?type=video… via @hedgeye
@KeithMcCullough
QUOTE OF THE DAY
The talent of success is nothing more than doing what you can do, well.
Henry W. Longfellow
STAT OF THE DAY
Adidas’s market share in China is 13.8% and Nike’s is 14.3%.
