CLIENT TALKING POINTS
REFLATION
This is what, the 4th or 5th or 6th time (July, Oct, Feb = were the biggest “bottom is in” commodity led rallies) we’ve had to quintuple down on #Deflation being non-transitory. Australia and Russia (Equities) +2.3% this morning vs. Copper down -1%. Who has the intermediate-term call from here right? Copper.
RUSSELL 2000
After “covering” (Real-Time Alerts signaling product) SPY last week, the signal said to re-short the Russell (IWM) into the close yesterday. Fully loaded with the 3-day squeeze, don’t forget that the Russell 2000 is still in crash mode (-21.9% since July) and being long illiquidity (junk and small caps) is killing returns – short lower-highs; cover lower.
OIL
One of the major fade signals for the “reflation” trade (or was it “PMIs bottoming”?) has been using the top-end of our risk range – that’s currently $32.65 for WTI and don’t forget that the most important component of my signal is volatility. With OVX’s implying 63-80 volatility in the immediate-term, we would sell the Energy “bounce” here.
*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 | 62% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 2% | |
| FIXED INCOME | 26% | INTL CURRENCIES | 10% |
THREE FOR THE ROAD
TWEET OF THE DAY
Strong net buys from $WWAV insiders filed yesterday. #LONG
@HedgeyeFood
QUOTE OF THE DAY
Life isn’t about getting and having, it’s about giving and being.
Kevin Kruse
STAT OF THE DAY
42% of wine consumed in the U.S. last year that was consumed by millennials, according to an industry group.
