Client Talking Points
Despite terrible economic data this week (or is that what European Equities really need, and a commensurate Down Euro?), the EUR/USD is having a hard time breaking down through the low-end of our current $1.08-1.12 risk range. We believe that’s why European Equities stop going up (again) here – if Mario Draghi doesn’t walk on water next week, watch out below.
Post the short squeeze “off the lows” the Russell’s draw-down is still -18.6% since July – if you haven’t been short small/mid cap, junk, illiquidity, high beta, high short interest, etc., here’s another bite at a big apple of alpha. There is immediate-term downside in the Russell to 991 (short/sell lower-highs, cover lower).
To end on a bullish note, Donald Trump would characterize today’s excellent buying opportunity in the Long Bond as very very super huge with the UST 10YR at 1.84% (on a whiff of a rate of change slow-down jobs report on Friday, our risk range implies 20 basis points of immediate-term downside to 1.64%); buy TLT, ZROZ, EDV, XLU, etc.
*Tune into The Macro Show with Hedgeye Macro and Housing Analyst Christian Drake live in the studio at 9:00AM ET - CLICK HERE.
|FIXED INCOME||26%||INTL CURRENCIES||6%|
Top Long Ideas
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:
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.
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.
Three for the Road
TWEET OF THE DAY
$CMG has competitive issues too! The meat you eat is more likely to be antibiotic-free this year http://www.huffingtonpost.com/entry/antibiotic-free-meat-subway-perdue-tyson_us_56d49d09e4b0871f60ec465c…
QUOTE OF THE DAY
The prettier the garden, the dirtier the hands of the gardener.
STAT OF THE DAY
Today in 1797, The Bank of England issued the 1st one and two Pound banknotes.