The BOJ, UST 10YR and Sectors

Client Talking Points

BOJ

Since the “whatever it takes” karaoke by Kuroda didn’t work (only a 2-day rally in Nikkei), he went with “there is no limit to measures for monetary easing”… code word = #panic, as the great central-planning experiment moves into its final phase of capitulation. The Nikkei got slammed for a -3.2% day as the Yen went UP on that.

UST 10YR

We don’t want you getting piggy with the UST 10YR at 1.86% - it’s been a great start to the year (long the Long Bond), so book some gains after this epic move towards the all-time lows (in yields). The “expensive” Long Bond gets more expensive as A) Deflation persists B) Growth Slows and C) German 10YR 0.29%, JGB 10YR 0.06%, and Swiss 10YR -0.33%.

SECTORS

From a S&P Sector Style perspective, the Best Idea in our Q1 Macro Themes deck remains playing our rates call via long Utilities (XLU +0.4% yesterday to +6.4% YTD) and short Financials (XLF -2.8% yesterday to -11.8% YTD).

 

 

*Tune into The Macro Show with Hedgeye Financials & Housing analyst Josh Steiner live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 61% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 25% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
XLU

After a busy week of domestic data, you probably don’t need us to tell you that growth continues to slow. Despite the short-covering squeeze in energy stocks, Utilities (XLU) closed out January as the only sector in positive territory (+5%), other than Consumer Staples which eeked out a +0.5% gain. It was an awful start to the year for the S&P 500 (-5%). Don’t expect +10% of relative outperformance every month, but if you stuck with us on this trade, you’re in much better shape than most.

GIS

GIS remains one of our top Long ideas in the consumer staples space. As we have continued to say it boasts style factors that are ideal in turbulent times; high market cap, low beta and liquidity.

 

Recently, General Mills has been attacked by Chobani commercials, claiming that Yoplait yogurt contains the same ingredients used in pesticide. GIS filed a false advertising lawsuit against Chobani demanding that they stop showing that commercial because it could be detrimental to sales. GIS just got word that a federal judge has barred Chobani from continuing the ad campaign. This is a win for GIS, but it is unclear right now if there was any damage done to the brand. At this time we do not believe it had any serious impact on the company. We will keep you informed of any material information regarding this lawsuit as it moves forward.  

TLT

Long-Term Treasuries (TLT) continues to preserve capital against the slow-moving trainwreck in Junk Bonds (JNK). Week-over-week, 10-year bond yields crashed 13 basis points to 1.92%. That helped lift the best play on U.S. growth slowing (TLT) by 0.85% on the week as credit spreads continued to widen (JNK gained +0.76% on the week, underperforming TLT marginally on a relative basis).

Three for the Road

TWEET OF THE DAY

VIDEO

How 3 Key #FCC Decisions Could Affect $FB $NFLX $VZ https://app.hedgeye.com/insights/48896-how-3-key-fcc-decisions-could-affect-facebook-netflix-verizon… @KeithMcCullough @PotomacResearch

@Hedgeye

QUOTE OF THE DAY

You will either step forward into growth, or back into safety.

Abraham Maslow                                      

STAT OF THE DAY

China National Chemical Corp., or ChemChina, agreed to buy Syngenta AG, the total enterprise value (including debt) is $46.3 billion – making this China’s largest overseas acquisition.