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Super Huge And Big

“This is going to be super huge and big.”

-Donald Trump

 

Oh, absolutely. We’re talking massively super extra huge, “folks.” The selling opportunity in the US stock market (and buying opportunity in The Long Bond) right now is going to make your YTD returns very excellent and very great again.

 

Super Huge And Big - trump point

 

Back to the Global Macro Grind

 

It’s a good thing there’s no leadership risk developing in the Oval Office. Imagine that was priced into the market? Wow. That might make our #Deflation and #GrowthSlowing risks to macro markets look tame.

 

To review the non-politicized bear case for US Small/Mid Cap, High Beta, and Highly Levered Stocks (i.e. the same super extra very huge bull case for being long Munis, Long-Term Treasuries, and Utilities), it’s the cycle, stupid:

 

  1. US Economic Cycle SLOWING
  2. US Profit Cycle SLOWING
  3. US Credit Cycle ACCELERATING

 

Surely, a Trump or Hillary Presidency would reverse all 3 of those things… after they take the cycle through what Trump calls a “healthy” bankruptcy process, or centrally-planned “wage hike” restructuring?

 

No, very much like the Fed and the Christie-pooch lap dogs at the US Treasury, Mr. Super Huge Big Time was not able to reverse the gravity of the profit and credit cycle in Atlantic City… and he probably won’t be able to do that in Washington, D.C. either.

 

Yeah, I heard. He’s the “anti-establishment” vote amongst two broken brands (the Republican and Democrat Baby Boomer Parties).

 

What you may not have heard is that I’m starting a new party – the anti-establishment Free Market Liberty party. We’re going to be in charge of picking up this mess after all the levered players at the Monopoly table have lost all their money.

 

To review how to survive this stage of the economic, profit, and credit cycle:

 

  1. Raise Cash (don’t run with massive gross long leverage and net long equity exposures)
  2. Buy long-term liquid fixed income securities (short high yield and junk)
  3. At the top-end of the risk range on bear market bounces, short consensus with impunity

 

I know, I know. It’s working. The People hear us on this. Old Wall Street doesn’t. But wow, this is the beginning of something super excellent and, believe me, very very huge.

 

Unlike Mr. Big Time, I have some very specific ways to execute winning the next speed round of Monopoly. On the open today, I want you to position your hard earned net worth and liquidity as follows:

 

  1. BUY Long-term US Treasury Bonds (TLT) ahead of Friday’s #LateCycle jobs report
  2. SHORT the SP500 (SPY) anywhere from here to 1978 for immediate-term downside to 1889
  3. SHORT the Russell 2000 (IWM) anywhere from here to 1070 for immediate-term downside to 991
  4. SHORT the Nasdaq (QQQ) anywhere from here to 4699 for immediate-term downside to 4440
  5. SHORT the Nikkei 225 (or DXJ and its ETF manufacturer WETF) for 1,000 points of downside
  6. SHORT the DAX (Germany) ahead of Draghi walking on water next week (1,000 points of downside)

 

Oh yes, definitely and absolutely. I have a friend who is an excavator… and he told me that my short ideas are going to make the bulls feel like they got hit by a Komatsu. Super huge ideas. Very big.

 

To be very very clear, don’t believe the NY Times. “I have a bigger heart than anybody.” And I really don’t want all of my US, European, and Japanese shorts to impose the pain on PMs that they will. But “America is going to hell” if I don’t short these things.

 

“Believe me, I know a lot about money.” And if you really really want America to be great again (or at least be one of the people who has all the money before it goes back into the Monopoly box), here are some other things you can buy against those shorts:

 

  1. US Equity Volatility (buy your spouse some VIX call options for the next move to 25-30)
  2. US Dollars (buy those only when they are on fire sale closer to 94 on the US Dollar Index)
  3. Gold (take delivery, but have the patience to buy some closer to $1150-1175)

 

I know, I know. It’s working. This is why the establishment hasn’t agreed with me on the cycle for the last 6-8 months. But look at the polls. As the super huge and great Benjamin Graham taught America:

 

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” So if you’re going to vote for my new party and consistent positioning, vote big. This ongoing crash in stock markets worldwide is going to be very very huge and big.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.64-1.85%

SPX 1
RUT

VIX 17.11-24.28
EUR/USD 1.08-1.12
Oil (WTI) 28.56-35.01

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Super Huge And Big - 03.02.16 chart


Short Low, Cover High? No Thanks

Client Talking Points

EURO

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.

RUSSELL 2000

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).

UST 10YR

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

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 2%
FIXED INCOME 26% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
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. 

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

@HedgeyeHWP

QUOTE OF THE DAY

The prettier the garden, the dirtier the hands of the gardener.    

B.E. Barnes                                               

STAT OF THE DAY

Today in 1797, The Bank of England issued the 1st one and two Pound banknotes.


The Macro Show Replay | March 2, 2016

CLICK HERE to view the asscoaited slides.

An audio-only replay is available below:

 


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CHUY | SOMETIMES YOU NEED TO KNOW WHEN TO WALK AWAY

We are removing Chuy’s Holdings (CHUY) from our Hedgeye Restaurants Best Ideas list as a SHORT.

 

HEDGEYE OPINION

Last night CHUY reported 4Q15 and full year earnings results that beat our expectations as well as consensus expectations. In addition, their guidance looking out into 2016 and beyond was relatively in line with consensus. A core aspect to our short thesis was a continuing decline in traffic due to their pricing, and heavy concentration in Texas, specifically oil markets such as Houston and San Antonio. Although management spoke to softening in these regions it was not enough to greatly affect the overall business. Sometimes you need to know when to walk away, and this is that time for us, we are removing it from our list altogether, and will watch this one from the sidelines.

 

4Q15 RESULTS

CHUY reported revenue of $71.0 million, slightly beating out estimates of $70.4 million. Same-store sales growth in the quarter was +3.2%, handily beating consensus estimates of +2.8%. The comp was entirely built up by price, as traffic was flat in the quarter. Earnings per diluted share was $0.18 in 4Q15 versus consensus estimates of $0.13.

 

DEVELOPMENT

During 4Q15, four new Chuy's restaurants were opened - in Tuscaloosa, Alabama; Columbus and Beavercreek, Ohio; and Orlando, Florida, which was right on par with consensus estimates. Subsequent to the end of the fourth quarter, one additional Chuy's restaurant was opened inWoodbridge, Virginia.

MANAGEMENT GUIDANCE

The company expects 2016 EPS to be between $1.01 and $1.05, current consensus estimates were pegged at $1.03 for full year 2016. Management expects comparable restaurant sales growth of approximately 2.0%, slightly below consensus estimates of 2.6%.  And the company intends to open 11 to 13 new restaurants in the quarter, which is in line with current consensus projections of 12 new restaurants in 2016.

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 

 



LAZ: Adding Lazard to Investing Ideas (Short Side)

Takeaway: We are adding Lazard to Investing Ideas today.

Editor's Note: Please note that our Financials analyst Jonathan Casteleyn will send out a full report outlining our high-conviction short thesis later this week. In the meantime, below is a brief summary of our thesis sent yesterday by Hedgeye CEO Keith McCullough in Real-Time Alerts.

 

LAZ: Adding Lazard to Investing Ideas (Short Side) - z laz

 

Looking for great ways to play the end of the levered investing cycle? Look no further than bankers at Lazard (LAZ). Per Jonathan Casteleyn's most recent research note:

 

"Like most cyclical stocks, Lazard "looks" cheapest at market tops as its earning downturn is just getting started versus at market bottoms when the company is underearning and shares "look" expensive (but they are actually great early cycle longs). 

 

We have earnings flat at $2.80 for 2016 and 2017 which we capitalize at 8-9x for a fair value of $25. However in a 1 Emerging Market type downcycle, Lazard asset management with ~50% of its asset-under-managments in EM credit and equity will cause LAZ stock to overcorrect and spit off more downside (substituting current day China for Thailand in '97 in running out of FX reserves to support its currency and plugging in Venezuela or the Ukranine for Russia's '98 default)." 


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