CLIENT TALKING POINTS
EURO
The euro is down another -0.6% vs. USD this morning after falling -1.1% last week with the composite Eurozone PMI hitting a 13 month low of 52.7 in FEB. Since the risk range is $1.09-1.13, we expect this party to end at $1.09, and Gold to hold $1150.
DAX
DAX loves Burning Euro, +2.1% on the bounce but still very much in crash mode (-23% from the April 2015 peak when the European economic cycle was peaking). ECB President Mario Draghi will have his work cut out for him at the March 10th meeting to break $1.09.
UST 2YR
The UST 2YR pops (like everything that hasn’t been working in 2016) to 0.77% this morning – most importantly, that flattens the Yield Spread (10s/2s) to +100 basis points, which is a new YTD and cycle low; good day to buy more Utilities and short more Financials.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
XLU
Long-Term Treasuries (TLT) and Utilities (XLU) remain our two best fixed income and equity vehicles to play #Lower-For-Longer on growth and interest rates as the market gets more and more skeptical about the central bank dogma.
With market turmoil, the Junk Bond ETF (JNK) is down -4.5% vs. the defensive, growth slowing equity sector Utilities (XLU) which is up 6.7%, outperforming the S&P 500 by 12.9% on a relative basis. That’s yet more confirmation of our dour economic outlook economy (spreads widen in tumultuous market environments and Utilities are a defensive sector that outperforms when growth is slowing).
GIS
General Mills (GIS) is a large player in the Yogurt category with their Yoplait brand. Their competitors, Dannon, Chobani and Fage have been aggressive on merchandising and consumer spending, making it difficult to compete while maintaining internal margin objectives. GIS is turning on innovation with the growth of Annie’s yogurt and that should help the trajectory of the business. Yogurt being a roughly $1.4 billion business, turning it around is a top priority for management.
On the broader GIS long thesis, it's unlikely that the stock is going to go up 20% in the next year, but we do believe it will fare better than most in the consumer staples sector, especially as we head into an economic slowdown.
TLT
With the market losing faith in the central planning policy backstop, investors continue to yield to top-down market signals and the direction of the data. To be clear, the data continues to deteriorate and volatility continues to break-out.
The yield spread (10-year Treasury yield minus 2-year Treasury yield) has compressed 24 basis points this year, and TLT is up 8.6% vs. the S&P 500 which is down -5.2%. The December Federal Funds Futures contract has declined in a straight line since December’s rate hike.
Asset Allocation
| CASH | 63% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 3% | |
| FIXED INCOME | 24% | INTL CURRENCIES | 10% |
THREE FOR THE ROAD
TWEET OF THE DAY
NEW VIDEO | New #FCC Proposal Should Worry $DIS $VZ $CHTR https://app.hedgeye.com/insights/49282-how-latest-fcc-rules-could-affect-disney-verizon-charter… @KeithMcCullough @PotomacResearch
@Hedgeye
QUOTE OF THE DAY
Genius ain't anything more than elegant common sense.
Josh Billings
STAT OF THE DAY
A study conducted in the U.S. found that the average American spends 67 minutes per day eating and drinking beverages. Summed up together, the average Joe spends a staggering 32,098 hours eating and drinking beverages in their lifetime.
