CLIENT TALKING POINTS
YEN
The Yen is ramping (again) vs. USD this morning and that is not a good thing when it comes to the #BigBangTheory as it keeps Japanese stocks (Nikkei -1% overnight and -23.1% since last year’s high) in crash mode with no “G20 help” this weekend.
EUROPE
European stocks had their slow-volume bounce last week (EuroStoxx600 +1.6% to -9.4% year-to-date), but resume their crash this morning with the DAX -1.6% (down 13% year-to-date and -24% from 2015 top) post a #Deflation print of -0.2% year-over-year for Eurozone CPI. The Swiss 10YR falls to -0.45% as #NIRP continues to perpetuate #Deflation.
UST 10YR
The UST 10YR didn’t really budge during last week’s U.S. stock market levitation – more importantly, with the 10YR = 1.74% this morning, the Yield Spread has compressed to another new low of 96 basis points wide (10s/2s) and that keeps the Financials (XLF) as our favorite S&P Sector Short vs. Utes (XLU) long.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
XLU
Our preferred growth slowing vehicle remains Utilities (XLU) in equites. Hitting on Friday’s revised GDP report (Q/Q SAAR Q4 GDP revised to +1.0% from +0.7%), a deep-dive into the number doesn’t support an incrementally stronger economy:
- Consumption was revised down marginally but net exports were up with the negative revision to imports outweighing the negative revision to exports. That’s good for the number but lower global trade activity is not a good sign for global growth;
- Much of the actual change in the revision was due to inventories, which contributed +0.31pts to the headline number
GIS
General Mills (GIS) hit an all-time high last week when it reached $60.18 on Thursday. Although this would not be a great entry point, it is also not a reason to get out if you have a long-term view. Nothing has changed in our fundamental story and we have no reason to lose faith in our thinking to date.
Over the course of the past few years, GIS has made strategic acquisitions within the natural & organic / wellness space (we call it the string of pearls approach). Although they are not largely meaningful to top or bottom-line right now, they are changing the way the company thinks about its broader portfolio.
We continue to believe GIS is one of the best positioned consumer packaged foods companies due to its strong brands and best-in-class people and organization.
TLT
Our preferred growth slowing vehicle remains (Long-Term Treasuries) TLT in fixed income. A flattening in the yield spread (10YR Treasury Yield – 2YR Treasury Yield) continued last week into double digit basis point territory (currently at 96 basis points). Year-to-date the yield spread has declined 44 basis points while the 10YR Treasury Yield has dropped 47 basis points. As a reminder the yield curve flattens as the economy slows with policy and/or liquidity management driving the short-end higher and defensive positioning and/or discounting of lower future growth/inflation driving the long end lower.
Asset Allocation
| CASH | 65% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 4% | |
| FIXED INCOME | 25% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
NEW VIDEO | McCullough: How To Think About Volume https://app.hedgeye.com/insights/49431-mccullough-how-to-think-about-volume… cc @KeithMcCullough $IWM $SPY $DJIA
@Hedgeye
QUOTE OF THE DAY
I attribute my success to this: I never gave or took any excuse.
Florence Nightingale
STAT OF THE DAY
There are 7% fewer babies born on leap year day as there are people born on any other day.
