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Client Talking Points

EURO

Newsflows are pointing to a potential ECB wavering into next week’s Draghi-walk-on-water-central-planning-event. That would be bullish (on the margin) for EUR/USD, which is up this morning +0.3% after holding the low-end of our $1.08-1.12 risk range.

ITALY

Italy no likey Up Euro (hasn’t the entire time and this is important to watch as Italian stocks led the European Equity crash with the draw-down from last year’s peak reaching -33% at one point); #EuropeSlowing data remains obvious from 2015 cycle peak.

GOLD

If you ask Gold (Dollar Down, Gold Up) today’s jobs report is going to be precisely what it’s going to be (#LateCycle); don’t forget that NFP rate of changed peaked in FEB of 2015 at +2.34% year-over-year growth (toughest comp of the cycle).

 

*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

A Few Thoughts On Permabulls, Volatility & Bear Market Bounces https://app.hedgeye.com/insights/49535-a-few-thoughts-on-permabulls-volatility-bear-market-bounces… @KeithMcCullough #Fed $IWM

@Hedgeye

QUOTE OF THE DAY

The only person you are destined to become is the person you decide to be.

Ralph Waldo Emerson

STAT OF THE DAY

After 340 days, watching 5,400 earth orbits and nearly 11,000 sunsets American astronaut Scott Kelly returns to earth 2 inches taller. He has spent almost a full year on the International Space Station floating 250 miles above the earth — setting a record for an American astronaut.