"If the Old Wall wants you to imagine that Friday’s 1% GDP report was a “beat” (when the expectation for the past 2 years has been +3-4% growth), that’s fine," Hedgeye CEO Keith McCullough wrote in this morning's Early Look. "Your 2016 portfolio returns, however, have sided within being long asset allocations that do well when GDP growth slows from 3 to 2 to 1. So start your March off right - short the Financials (XLF) – buy more Utilities (XLU)."
must-see [INTERACTIVE] market tv
You don't want to miss this. Earlier this morning we hosted a special *FREE* edition of The Macro Show with Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale. You'll get a front-row distillation of all the key global market and economic developments and how to position yourself accordingly. In addition ... Keith answers viewer questions during our interactive Q&A.
Don't miss out. click below for access.
Potomac Research Group's Chief Political Strategist JT Taylor joins Hedgeye Director of Research Daryl Jones for a Super Tuesday preview. The Republican establishment hopes that Rubio or Cruz can capture some delegates in the face of Donald Trump's seemingly insurmountable leads in nearly every Super Tuesday state. Meanwhile, Hillary Clinton seeks to build on her momentum from a big South Carolina win to effectively seal the deal on the Democratic side.
Takeaway: Our analysts think Valeant Pharmaceuticals' shares still have 70% downside.
Shares of the drugmaker Valeant Pharmaceuticals (VRX) have tumbled -18% today after it was reported that the company is under investigation by the U.S. Securities and Exchange Commission. Our Healthcare analysts Tom Tobin and Andrew Freedman have long warned about Valeant's unsustainable business model was supported by an acquisition spree that aggressively valued those assets:
“Valeant is operating what we believe is an unsustainable business model of serial acquisitions and underinvestment, fueled by debt, that will continue to lead to deterioration in the ongoing business.” (Hedgeye, 7/2014)
Below we have unlocked our Healthcare team's original research along with a few updates and the most recent research laying out why VRX shares are only worth $20:
"VRX | Bear Case $20 | Redemption Cycle" (11/5/2015)
"The Valeant Implosion Part 1" (11/15/2015)
Original Valeant Pharmaceuticals "Black Book," (7/2014)
Below is a smattering of Freedman's follow up via Twitter:
Takeaway: Tightening credit conditions and economic history don't augur well for the Fed and its "ability to soften the blow."
Editor's Note: Watch out if the U.S. economy stalls ... the Fed has very little monetary policy "cushion" left should the economy take a turn for the worse. That's one of the key takeaways from a recent institutional research report written by our Financials analysts Josh Steiner and Jonathan Casteleyn. On a related note, our Macro team has been highlighting the increasing likelihood that the U.S. slips into a recession sometime in the next one to three quarters. Below is a brief excerpt. To get full research access email firstname.lastname@example.org.
Excerpt from Research Report:
"... Perhaps of equal interest is the fact that the Fed has historically had an enormous policy cushion in response to recessions. The table below shows that since 1969, the Fed has eased by an average of 750 bps in response to every recession. The last two cycles have seen the Fed ease by 560 bps and 520 bps. The challenge this time around is that the Fed's current policy cushion is 36 bps.
To summarize, credit conditions are tightening, which has historically ushered in a recession, and the Fed is short by around 5 percentage points on its ability to soften the blow."
Click to enlarge
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