Client Talking Points
In prior U.S. economic slow-downs, the Fed would A) devalue the Dollar and B) try to smash equity market volatility. It’s impossible to do that when tightening into a slow-down; this perpetuates the liquidity trap. The VIX risk range is 22-31 and that’s why equity bulls are selling every bounce – they need to take down exposure to being wrong.
The CRB Index (19 commodities) was hammered to fresh 5 year lows yesterday (-2% to 156). This isn’t “transitory” – its pervasive – and an absolute unwind of Bernanke’s 2011 QE policy to inflate asset prices (i.e. the illusion of growth) via USD Devaluation to a 40 year low (we remain bullish on USD).
On the margin we said the U.S. Financials (XLF) were one of the best non-consensus shorts in 2016 as consensus was long them on the “rate hike.” Well, now the UST 10YR is at 1.98% and the XLF led losers again yesterday -2% to -11.9% year-to-date; won’t be long before consensus is begging for no more hikes, and then a rate cut.
*Tune into The Macro Show with Macro and Housing analyst Christian Drake live in the studio at 9:00AM ET - CLICK HERE.
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Top Long Ideas
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 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.
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
[REWIND] Early Look: Why Sell? (7/14/15) https://app.hedgeye.com/insights/48654-unlocked-early-look-why-sell… via @KeithMcCullough $SPY #marketselloff $IWM
QUOTE OF THE DAY
I failed my way to success.
STAT OF THE DAY
Amazon is hiring 1,200 people to staff its new robot-reliant 800,000 square-foot warehouse, these warehouses cost about $100 million each.