Client Talking Points
They crushed the Shanghai Composite -2.9% to lower-lows overnight. There’s not much the Chinese can do at this point – they’ve already lied to the world about both their GDP figures and intentions to devalue the Yuan by 10-15%.
Consensus is so focused on “Oil and China,” but is nowhere near focused enough on the #crash (> 20% decline from 2015 peak) in European Equities. Spain is a disaster and Italian Banks are leading the MIB Index -3% this morning (-14% in the last month alone).
Our Top 3 Long Ideas in Macro right now remain: USD, Utilities (XLU), and The Long Bond. The UST 10YR is about to break the 2.00% yield level again as German and Japanese 10s chase to lower-lows of 0.42% and 0.21%, respectively.
*Tune into The Macro Show with Energy analyst Kevin Kaiser live in the studio at 9:00AM ET - CLICK HERE.
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Top Long Ideas
Utilities (XLU) continue to be the bright spot in the equity markets for 2016. XLU is up 1% this year, having edged out all other S&P 500 subsectors by a wide margin. Last week, XLU was down marginally but was still second best among the subsectors, beating all but Healthcare (XLV). Essentially, it's paying off to own low-beta XLU in a crashing market.
General Mills (GIS) has turned on its advertising for no artificial colors and flavors in its cereal, as well as an increased effort for its gluten free campaign. Click here to view the 30 second spot TV commercial.
These steps taken on cereal, coupled with improved merchandise planning across their portfolio in the second half should bode well for the company’s future performance. Additionally, General Mills fits neatly into the style factors that we like from a macro point of view, large cap, low beta and liquidity.
Rating agency S&P disclosed on Thursday three concerning stats as it relates to the wellness of credit oustanding:
Then on Friday, S&P followed with additional action:
Moody’s echoed the shaky state of credit markets by announcing it was putting the ratings of 120 oil and gas companies on watch Friday.
Strap on your seatbelts as we expect that credit spreads will continue to widen. If the Fed pivots on its “4 rate hikes” in 2016 as the data continues to slow, Treasury bond yields get pushed lower and high-yield spreads widen into a late cycle deleveraging. This should continue to generate alpha in a Short JNK, Long TLT trade.
Three for the Road
TWEET OF THE DAY
McCullough: My Thoughts On Today's Fed Statement https://app.hedgeye.com/insights/48793-mccullough-my-thoughts-on-today-s-fed-statement… via @hedgeye
QUOTE OF THE DAY
Life is short. Smile while you still have teeth.
STAT OF THE DAY
Today in 1878, The Yale Daily News became the 1st daily college newspaper in the U.S.