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Client Talking Points

EURO

Does Draghi need Burning Euro for European Equities to stop crashing? Yes. Down Euro -0.4% vs. USD this morning finally stopped the DAX at a -30% crash (since 2015’s high) – Italy’s crash (MIB Index) was -34%! This stops Gold from going higher this am too (Up Dollar) – my FX volatility signal is surreal (Euro risk range 1.07-1.14).

OIL

What will a +4.5% bounce off new cycle lows do? Keep Oil Volatility (OVX) astonishingly bullish – and that is bearish for the TREND call on everything Energy which remains bearish – risk range on OVX is, get this, 62-79! (immediate-term risk range for WTI = 25.98-29.99) – bear markets don’t end in big media sponsored bounces.

SPY

Still in our Best Ideas list (Short Side), but after closing at new YTD lows yest (1829 SPX = down -10.5% YTD and -14.1% since we went bearish on it in July) we should see a bounce this morning – problem is risk range only gets me 1882 on the upside, whereas a month ago the range could get you at least back to 1950-2000.

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 21% INTL CURRENCIES 13%

Top Long Ideas

Company Ticker Sector Duration
XLU

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

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.

TLT

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

Headlines/Rumors of OPEC cuts are a mirage. Still too early. Here's what to watch. app.hedgeye.com/insights/48949…

@Hedgeye @JoeMcMonigle

QUOTE OF THE DAY

"I say I'm a million percent. That is better than a hundred percent!"

-Randy "Macho Man" Savage

STAT OF THE DAY

Randy "Macho Man" Savage played 289 games in four minor league seasons, batting .254 with 16 homeruns and 66 RBIs.