The BOJ, UST 10YR and Sectors

Client Talking Points


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.


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%.


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


Top Long Ideas

Company Ticker Sector Duration

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 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.  


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



How 3 Key #FCC Decisions Could Affect $FB $NFLX $VZ… @KeithMcCullough @PotomacResearch



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

Abraham Maslow                                      


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.

The Macro Show Replay | February 3, 2016


JT Taylor: A Magical Night For Marco Rubio

Last night's Iowa caucuses yielded more than a few interesting takeaways. Hillary Clinton was forced to flip six quarters to beat Bernie Sanders for the top spot, while Ted Cruz cruised to a first place finish in the GOP leaving Donald Trump scratching his head.


Here's a brief excerpt from Potomac Research Group Senior Analyst JT Taylor's Morning Bullets sent to institutional clients each morning. 


JT Taylor: A Magical Night For Marco Rubio - marco rubio


"MARCO'S MAGIC NIGHT: The establishment has a heartbeat. And its name is Marco Rubio. In our opinion, Rubio pulled off the biggest victory of the night, stringing together an impressive close-third place showing led by late-breaking undecideds, as well a good share of evangelicals and new voters (thank you, Donald). Electability is the name of the game, and if Rubio can play in Iowa (they traditionally nominate the most conservative candidate who ends up fizzling out before the general election) then he'll play anywhere.  


CAN RUBIO CONSOLIDATE ESTABLISHMENT LANE/MONEY -- AND FAST? With Bush, Kasich, and Christie all flagging, there will be growing pressure for them to step out of the race and throw their support behind Marco Rubio. New Hampshire may be an elimination round for Kasich and Christie so they must have a strong showing, but Bush still has enough cash to keep going for the long haul. It all depends on how New Hampshire shakes out -- calls for the also-rans to bow out will be far louder -- but the candidates will decide whether to exit on their own terms, not necessarily when it's most convenient for Rubio. 


Republican moneyed circles will be anxious to see when Bush will drop out of the race. Big-ticket donors are practically throwing their money away out of loyalty to the family, and are waiting for the go-ahead to break. Just where will their dollars flow? Our money is on Rubio."


Watch TAYLOR's latest washington wrap-up In the VIDEO BELOW:

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Cartoon of the Day: Skating On Thin Ice - central banker cartoon 02.02.2016


The fear is palpable. Despite the best efforts of central planners around the globe, equity markets are continuing to crash as investors begin to recognize that the magical monetary policy jig is up.

LNKD | Thoughts into the Print (4Q15)

Takeaway: We closed the long, now mulling the short. Expecting light 2016 guide, but street reaction tough to gauge. Debating whether to pull trigger


  1. CLOSED LONG, MULLING SHORT: Our Talent Solution TAM analysis suggests that the majority of LNKD’s opportunity is in the up-sell opportunity (vs. account volume).  We believe that opportunity is largely driven by the selling environment, which is largely driven by macro; specifically where we are in the employment cycle.  Our Macro team has been flagging that we are late cycle, and recently suggested that we may be heading into a recession as early as 2Q16.  With that backdrop, we closed the long once we saw our tracker deteriorate more than seasonality alone would have suggested.   Now, the question is whether that deceleration is a blip, or the beginning of a bigger trend.  If the latter, our TS Economic Sensitivity analysis suggests the up-sell will get much tougher from here (see first table and note below for detail).
  2. EXPECT LIGHT 2016 GUIDANCE: We suspect it's even less likely now that mgmt guides to street expectations if our tracker is correctly flagging a deteriorating selling environment.  Consensus may have been asking for too much to begin with.  The implicit assumption in consensus Talent Solution revenues estimates is calling for an acceleration in ARPA, which would be a challenge even if the selling environment wasn’t deteriorating as our tracker suggests.  Futher, consensus is assuming accelerating growth in LNKD's other two segments, meaning any upside from both Sales Navigator and the dissipating Display headwind appear to be captured in estimates.  Further, Fx remains a headwind YTD, which we expect to be top of mind for this mgmt team since FX was the largest source of its guidance cut last year.    
  3. BUT CAN’T QUITE GAUGE REACTION: We doubt we’re alone in our expectation for soft guidance since LNKD’s mgmt team is notoriously conservative with its guidance to begin with.  The setup right now isn’t all that dissimilar to the 2015 guidance release, which was inline with consensus revenue and slightly lower on EBITDA, with 1Q15 missing across the board.  However, LNKD crushed 4Q14 estimates, and the stock ripped.  We believe mgmt gave itself enough breathing room on the 4Q15 guide, so it’s possible that the stock could pop on this print as well.  Then again this isn't 2015, and LNKD’s recent outperformance suggests expectations are rising into the print.  We're debating whether to pull the trigger on the short before LNKD reports on Thursday.

LNKD | Thoughts into the Print (4Q15) - LNKD   ARPA vs. Tracker 4Q15 2

LNKD | Thoughts into the Print (4Q15) - LNKD   TS TAM Analysis

LNKD | Thoughts into the Print (4Q15) - LNKD   TS Scen 2016

LNKD | Thoughts into the Print (4Q15) - LNKD   Consensus estimates 4Q15


LNKD: New Best Idea (Long)
07/14/15 08:00 AM EDT
[click here]


As a reminder, we will be hosting our quarterly Internet Best Ideas call this Thursday at 1pm EST.  In the interim, let us know if you have any questions, or would like to discuss further.


Hesham Shaaban, CFA


Early Look

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