CLIENT TALKING POINTS
EUROZONE
Got inflation? Eurozone CPI fell 10 basis points to 0.30% year-over-year in a final January reading. The ECB meets next on March 10th – this print taken alongside recent rhetoric from ECB heads suggests the increased likelihood the Bank acts to increase its QE program. Remember, its goal is to stoke inflation anyway it can, even if QE can’t accomplish this, or spur growth. #EuropeSlowing
#GROWTHSLOWING
Amazingly, the Markit Service Sector PMI falling into contraction for the 1st time since the Great Recession got almost zero media coverage yesterday. Services Consumption represents ~65% of household spending and ~45% of GDP and has hereto been held out as the bullish foil for the ongoing industrial recession. The ISM Services Index has shown a similar trend – slowing in each of the last 3 months and, at the current index reading of 53.5, sits at its lowest level since the polar vortex lows of February 2014.
#GOLD
Gold loves nothing more than down dollar and interest rates. With consensus positioned for a stronger USD and a series of rate hikes into 2016, gold has sniffed out growth slowing data and market turmoil. In consequence, Gold and Silver are leading CRB divergences YTD at +16.6% and +10.3% YTD against a weaker USD (-1.3% YTD) and a 10-Year Yield that continues to price in slower growth, backing off -51bps on the year, at 1.74% this morning. While the Fed continues to play hardball on the direction of policy in 2016, the market trades skeptical.
*Tune into The Macro Show with Darius Dale and Ben Ryan 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 | 4% | |
| FIXED INCOME | 25% | INTL CURRENCIES | 8% |
THREE FOR THE ROAD
TWEET OF THE DAY
Is the $MD roll-up over? *LIVE* q/a12:15PM today @Hedgeye @HedgeyeHIT https://app.hedgeye.com/insights/49375-healthcare-updates-you-can-t-afford-to-miss-plus-live-q-a-md-holx-md…
@HedgeyeHC
QUOTE OF THE DAY
The most difficult thing is the decision to act, the rest is merely tenacity.
Amelia Earhart
STAT OF THE DAY
American drivers put a record number of miles on their vehicles last year roughly 3.15 trillion miles, or enough to make roughly 337 round trips to Pluto (The Washington Post).
