CLIENT TALKING POINTS
FX
Both the BOJ and ECB are doing everything they can to not have their respective currencies appreciate, but in spite of 1-day bounces on newsy days (that they create), they appear to be in the initial phase of losing control of the transmission mechanism.
DAX
1-day bounce (yesterday) does not an arrest of the stock market crash make. Draghi’s Euro is actually up vs. USD this morning as Italian stocks continue to crash and the DAX falls back to -26% since the 2015 peak – should he jawbone daily?
OIL
Context is critical here – after another -4.7% week for WTI, they bounced it +3-4% on the OPEC headline this morning and have since lost most of that. The risk range remains intact at $26.02-31.39 (don’t chase bounces, sell them!).
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
XLU
Utilities worked against us for a -2% loss on the week, but remain an outperforming sector YTD. New scares in the form of increased risk from the financial sector emerged last week. Deutsche Bank made headlines over liquidity concerns that tied into CEO Keith McCullough's favorite S&P Sector short, the Financials. Financials are the most over-owned group relative to its rate risk – XLF is now -14% vs. Utilities (XLU) +5.3% YTD.
GIS
Walmart is still having an effect on General Mills, but it isn’t any more or less severe than previously guided by management. They will begin to lap some of the effects caused by the retailer at the beginning of their 4Q16 (starting in March). Five years ago they dealt with a similar clean store policy implemented by Walmart. Coming out of that they seemed to have gotten more than their fair share of upside, specifically in cereal and fruit snacks, now they are seeing a little more than their fair share on the downside.
TLT
Investors continue to be confronted with our signal of #GrowthSlowing in the U.S. and globally. Even the White House came out to reduce 2016 U.S. inflation assumption to 1.5% from prior expectations of 1.9%! We’ve called for yield compression alongside our signal of growth slowing and our expectation that global investors will continue to pile into US Treasuries as a “safe haven” liquid play. Last week, the US 10 year fell 13bps to 1.736%.Continue with our go-to macro market calls of long TLT and short JNK, and things don’t have to be so doom and gloom.
Asset Allocation
| CASH | 64% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 2% | |
| FIXED INCOME | 23% | INTL CURRENCIES | 11% |
THREE FOR THE ROAD
TWEET OF THE DAY
What @Hedgeye is watching in The Week Ahead https://app.hedgeye.com/insights/49110-the-week-ahead… cc @KeithMcCullough
@Hedgeye
QUOTE OF THE DAY
Honesty is a very expensive gift. Don’t expect if from cheap people.
Warren Buffett
STAT OF THE DAY
An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007.