VIX, Russell and Russia

Client Talking Points

VIX

We really did need sentiment to pivot back to bullish (positioning was bullish until we hit the FEB lows, then they sold the lows – then the squeeze). That said the bullish TREND in equity volatility has a risk range of 15-30, and now we’re at 17 – next big move = up.

RUSSELL 2000

While we’ve been bearish on the Russell 2000 (and S&P 500) since July, we’ve had some massive opportunities to underweight, sell, short, etc. Small Cap (SIZE) as a style factor at obvious lower-highs (from the all-time bubble high of 1295). Now = another one of those opportunities with immediate-term down side to 991 – Costco comps of 0% is not “an economy that appears to be picking up.”

RUSSIA

Forget your friends telling you “Oil has bottomed” or that they’re once again long levered Energy stocks (remember OCT?), the real fun was in being long Russian stocks for the last +14% ramp (in a month!); is this where the next 3-6 months of alpha is going to be? We say this and all Oil & Gas related exposures are happy hunting grounds for bears again.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 2%
FIXED INCOME 28% 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

Europe has rolled off its cycle peak and not enough investors have contextualized the impact this'll have on the USD

@HedgeyeDDale

QUOTE OF THE DAY

I don’t believe in luck, I believe in preparation.

-Bobby Knight                                                 

STAT OF THE DAY

Airbnb now offers over 1 million rooms or units nationwide.