CLIENT TALKING POINTS
JAPAN
What is breaking really bad is the Japanese assumption that they can print to infinity and beyond and get stock market inflation. The Nikkei is down for the 4th straight session, -1.3% overnight, and testing crash mode (again) at -19.3% since July.
EPS
308 of 500 S&P Companies have reported and it’s not pretty. On a year-over-year basis, SALES -4.7%, EPS -6.4% and only 3 of 10 SECTORs have year-over-year profit growth. *Reminder: 2 consecutive negative year-over-year profit quarters has always = 20% draw-down in the S&P 500.
UST 10YR
The UST 10YR Yield is down at 1.85% getting ahead of the jobs report implies that buy-side expectations are for another rate of change slow-down in NFP. Don’t forget that no matter what the absolutists have to say about this print, NFP growth peaked at 2.34% in FEB of 2015 – add to Long Bond positions on all short-sighted rallies in yields.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
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).
Asset Allocation
| CASH | 63% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 0% | |
| FIXED INCOME | 23% | INTL CURRENCIES | 14% |
THREE FOR THE ROAD
TWEET OF THE DAY
NEW | Under 60 Seconds: Ralph Lauren's Earnings Report
Watch it: https://app.hedgeye.com/insights/48971-under-60-seconds-rl-s-earnings-report…
@KeithMcCullough $RL
@Hedgeye
QUOTE OF THE DAY
It’s not what you look at that matters, it’s what you see.
Henry David Thoreau
STAT OF THE DAY
Tough times in Brazil are impacting Carnival, Petroleo Brasileiro SA, the state oil giant known as Petrobras, says it has cut its Carnival budget by 80%.
