Client Talking Points
Breaking bad, the belief system is here – Japan says “negative yields” (and they got them – 10YR JGB -0.04% now), but they didn’t get Down Yen, Up Nikkei – they got Up Yen, Crashing Nikkei! (Nikkei -5.4% overnight, -22.8% since July).
If you thought the central planning experiment in the U.S. and Japan went bad, look at what Draghi is doing to the banks in Europe. Italy’s stock market is down another -1.5% this morning taking it’s crash (since July) to -32.8% (if the SPX crashed that % it would be at 1,436 FYI).
We shifted our favorite S&P Sector short from Energy to the Financials on JAN 5th and the main reason for that was our uber bullish call on the Long Bond (calling for all-time low in UST 10YR Yield) and Financials being the most over-owned group relative to its rate risk. The XLF is now -14.3% vs. Utes (XLU) +7.2% year-to-date.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
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Top Long Ideas
The bond market understands #GrowthSlowing. So do Utilities (XLU), which is why XLU is leading S&P sub-sector performance in 2016. XLU is up +7.6% versus down -8.0% for the S&P 500. Stick with it on the long side.
GIS remains one of analyst Howard Penney's top Long ideas in the Consumer Staples space. As we have continued to say, it boasts style factors ideal in turbulent times; high market cap, low beta and liquidity. While GIS is down year-to-date, it's held up very well against the broader stock market. GIS is down -4% versus down -8% for the S&P 500 in 2016.
GIS has been picking up steam, as the company is working to improve merchandising and advertising on core business. One of the initiatives is making a distinct effort to delve deeper into the natural and organic category. That will certainly help them a lot in the long run. More to come.
Down go growth expectations and down goes the yield curve. That's the latest from Macro markets last week and it plays right into our long Long-Term Treasuries (TLT) and short Junk Bonds (JNK) Investing Ideas.
The UST 10YR Yield declined another -9 basis points last week which helped boost TLT +1.1% on the week. In a healthy environment, bonds as an asset class go up in tandem, but JNK lost -0.9% on the week despite a falling yield curve. That’s because we’re NOT in an “all is good” environment. Credit spreads widen in turbulent times. This widening is the alpha-generating opportunity in long TLT, short JNK.
Three for the Road
TWEET OF THE DAY
VIDEO FLASHBACK: 4 Videos With Keith McCullough On Our Economic Outlook & Long Bond Call https://app.hedgeye.com/insights/49025-video-flashback-4-videos-with-keith-mccullough-on-our-economic-outloo… via @hedgeye
QUOTE OF THE DAY
Not appreciating what we have now robs us of our abundance even when it exists.
STAT OF THE DAY
Anheuser-Busch Inbev has spent $278.3 million on Super Bowl ads over the past decade, according to Kantar Media.
Takeaway: Hedgeye CEO Keith McCullough likes to say "I'm the most bullish guy on Wall Street... on Long Bonds (TLT)."
We've been bullish on the Long Bond (TLT) since August 2014. Here's what the score looks like versus the S&P 500.
In fact, Hedgeye CEO Keith McCullough is fond of saying, "I'm the most bullish guy on Wall Street... on Long Bonds." Below are four recent videos in which Hedgeye CEO Keith McCullough lays out our dour economic outlook and explains why that is bullish for Long Bonds.
1. McCullough on Fox Business, 10/20/2015.
"If you’re a CIO and you told everyone that rates would surprise to the downside, you’re doing your job. You’re giving [clients] a much lower volatility profile and they would have a big position in the Long Bond. To me that’s the elephant stomping around in the room."
2. McCullough on The Macro Show, "The Best Way to Play the Coming Recession," 12/29/2015.
3. McCullough on The Macro Show, "This Is Our Best Idea Right Now," 12/30/2015.
4. McCullough on Fox Business, "The Economy Is A Slow Moving Train Wreck," 1/4/2016
"Fortunately, we don’t have to apologize this morning," Hedgeye CEO Keith McCullough wrote in the Early Look today. "We were on the right side of the #LateCycle US Employment report going into the weekend. And we’re on the strong side of a worldwide selloff in both stocks and long-term bond yields this morning."
Takeaway: Marco Rubio could have capitalized off his third place finish in Iowa but dropped the ball to Trump and Cruz's benefit.
Editor's Note: Below is a brief excerpt from Potomac Research Group Senior Analyst JT Taylor's Morning Bullets sent to institutional clients each morning.
NH voters have had a full day to process Saturday night's debate and it's not good for Marco Rubio. Govs Christie, Bush and Kasich have all climbed in a number of polls conducted since the debate and are showing new life. Rubio had a chance to capitalize on real momentum coming out of Iowa and he blew it. The race for second is now a free-for-all. The absence of a convincing win for Rubio benefits current NH frontrunner Donald Trump as well as Ted Cruz, who is better-positioned for the SC primary. The longer there's no clear winner in the Rubio/Christie/Bush/Kasich fight to make it a three-way race, the better for Trump. With so much volatility in the race, why would anyone considering dropping out?
BIG DOG BARKS:
We're wondering why it took so long for Bill Clinton to step in and attack Bernie Sanders -- we know he's been chomping at the bit for weeks. Clinton took Sanders to task for being "hermetically sealed" outside reality, and exhorted his supporters to come to their senses as Hillary has been closing the gap on Sanders in the Granite State. Do you think they're reading the sequel to the Comeback Kid?
WATCH TAYLOR'S LATEST WASHINGTON WRAP-UP IN THE VIDEO BELOW:
In this brief excerpt of The Macro Show this morning, Hedgeye Senior Macro analyst Darius Dale explains the fallacy of Wall Street’s S&P 500 year-end targets and why the stocks could fall a lot further from today’s prices.
Subscribe to The Macro Show today for access to this and all other episodes.
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