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Yen, Oil and Sectors

Client Talking Points

YEN

The #BeliefSystem (of central-market-planning) continues to break-down as the BOJ is now rumored to “hold off next week due to unstable bond markets” – wow – weren’t negative yields supposed to save equities from the profit cycle? The Yen remains bullish TREND and the Nikkei which is down -0.8% overnight remains bearish TREND.

OIL

Chase the wabbit – U.S. equity futures whipping around on what Oil does and that isn’t going to do anything for the economy obviously (volatility = bad). The immediate-term risk range for WTI is 30.65-38.18 so the way we would deal with this is fade Oil related beta moves at the top end of that range.

SECTORS

No matter what oil does, our favorite S&P Sector remains Utilities (XLU) which ramped another +1.0% yesterday to immediate-term TRADE overbought at +10.5% year-to-date as our favorite Sector to be short remains Financials (XLF) which led “ex-Energy” losers yesterday -1.6% to -8.1% year-to-date.

 

*Tune into The Macro Show with Gaming, Lodging & Leisure Sector Head Todd Jordan live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 67% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 3%
FIXED INCOME 25% INTL CURRENCIES 5%

Top Long Ideas

Company Ticker Sector Duration
XLU

If you were long energy over utilities last week, nice trade! We'd remind you that Utilities (XLU) are outperforming the S&P 500 by +10% year-to-date. And that’s with the bounce. By contrast, Energy (XLE) was up 6.5% on the week but is up only 1% year-to-date.

GIS

General Mills (GIS) faces some headwinds across their portfolio, and although the 1H of FY16 was a challenge, the company has robust merchandising and consumer plans in the 2H that should improve results.

 

GIS has embarked on a mission to drive their top 450 SKUs, which represent 75-85% of their volume. Calling it their ‘Power 450’, surprisingly these 450 SKUs aren’t even in all retail locations and formats, broadening the distribution footprint of these top SKUs is priority number one for GIS’s sales team. The organization is also looking at the bottom 450, representing 1-2% of volume and making critical decisions on what products can be discontinued.

 

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

We can’t emphasize enough the bigger picture from both a data and top-down market signaling perspective. To contextualize the relief rallies and short squeezes in asset classes and instruments that are counter to our more longer-term view. Here’s what how we think the macro environment plays out from here:

  1. The market is positioned for more rate hikes into 2016
  2. The data continues to deteriorate, and market volatility ensues
  3. The expectation that “all is good” comes off the table and the market increasingly pivots to the view that, throughout 2016, the Fed is going to hike rates in methodical fashion straight into an economic slowdown
  4. The market takes in the growth slowing pivot in real-time (Treasury rates and the dollar both move lower, and inflation-leveraged assets like gold catch a bid)

 

Once the policy catalysts are out of the way in the next few weeks, our expectation is a return to outperformance in growth slowing asset classes (TLT and XLU). If you’re in for the TAIL and the TREND call, focus on the data, not the desperate attempts of central planners to arrest economic gravity. A brief reminder: ECB chief Mario Draghi will attempt to walk on water today.

Three for the Road

TWEET OF THE DAY

An Update On Howard Penney's SHORT #ShakeShack Call | $SHAK https://app.hedgeye.com/insights/49610-hedgeye-s-howard-penney-nails-shake-shack-short-call-again-shak… @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

It's kind of fun to do the impossible.    

Walt Disney

STAT OF THE DAY

Today in 1796, Napoleon married his 1st wife, Josephine.


Cartoon of the Day: Goldilocks & The Three Bears

Cartoon of the Day: Goldilocks & The Three Bears - three bears cartoon 03.08.2016

 

The risks looming over macro markets are getting downright depressing.


An Update On Howard Penney's SHORT Shake Shack Call | $SHAK

Takeaway: Shares tumbled as much as 11% today, after management offered unexpectedly light guidance.

An Update On Howard Penney's SHORT Shake Shack Call | $SHAK - shake shack image

 

Shake Shack shareholders are getting punished today. Shares of the burger chain fell as much as 11% after company guidance disappointed rosy expectations.

 

 

Hedgeye Restaurants analyst Howard Penney has been the bear on Shake Shack (SHAK). In May 2015, Penney told anchors on BloombergTV that SHAK shares were "egregiously overpriced" and had 60% to 70% downside. 

 

An Update On Howard Penney's SHORT Shake Shack Call | $SHAK - howard penney

 

Since then, SHAK shares have fallen -43%. Penney has been consistently bearish on the stock saying "Shake Shack Is One of the Most Overvalued Stocks Out There."

 

An Update On Howard Penney's SHORT Shake Shack Call | $SHAK - shake shack chart

 

The bottom line ... from Penney's original short call on the company, is that "the SHAK growth story (business model) is predicated on the view that what works well in NYC will work well in the rest of the world." However, outside Manhattan, the average restaurant's margins are slimmer because brand awareness isn’t as strong. Penney concluded:

 

"The bottom line is that, for us, there is a very good probability that SHAK begins opening up some new units that fall short of the Street’s expectations.”

 

That's what happened today.

 

For an update on Penney's latest think on SHAK, see the excerpt from the institutional research note below.

 

An Update On Howard Penney's SHORT Shake Shack Call | $SHAK - shake shack update

 

To read Penney's entire Shake Shack research note ping sales@hedgeye.com.


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JT Taylor: Will GOP Dump Rubio For Cruz... & Can Anti-Trump Money Make A Difference?

Takeaway: What to watch on the election 2016 campaign trail.

Below is a brief excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.

MICHIGAN MATTERS:  

 

JT Taylor: Will GOP Dump Rubio For Cruz... & Can Anti-Trump Money Make A Difference? - donald

 

There are 150 delegates at stake tonight -- MI, MS, ID, and HI. Donald Trump is leading in MI with 59 delegates at stake, but John Kasich and Ted Cruz are both on his heels. If Trump pulls off a double-digit win in MI and takes MS as well, then the weakness in his numbers from the past weekend's primaries, currently being touted by the establishment press, will feel like an aberration.  

 

If the race is closer than expected, then the toll from two poor debate performances, millions of dollars in attack ads, and opposition from most of the Republican establishment may be taking root, and could make the winner-take-all primaries much closer than the pundits are predicting. 

CRUZ CROSSOVER: 

 

JT Taylor: Will GOP Dump Rubio For Cruz... & Can Anti-Trump Money Make A Difference? - ted cruz up

 

The Republican establishment has long detested Cruz, but his lead over Marco Rubio is persuading some that he is best-positioned to block Trump. We're hearing whispers that a number of Rubio supporters are quietly preparing to jump to Cruz's ship, while additional reports claim "multiple" senators will endorse Cruz later this week. Still, Rubio's camp insists that once they win Florida, the map favors them after March 15th... leaving Rubio no incentive to get out.  

WHOSE SIDE ARE YOU ON?  

 

JT Taylor: Will GOP Dump Rubio For Cruz... & Can Anti-Trump Money Make A Difference? - romney

 

Since Super Tuesday a loose anti-Trump coalition has spent over $10 million on ads targeting the Republican frontrunner -- an effort to impede Trump's popularity in delegate-rich states like FL and IL. While these ads are ubiquitous in those states and others, they fail to guide voters towards another candidate, and Trump's core supporters will blindly follow him into November.

 

If Trump cleans up on March 15th then the anti-Trump movement may be short-lived. The real damage will take its toll in the general election -- with the Dems' gift that keeps on giving from the Dean of the Establishment Mitt Romney and other Republican leaders providing great substance to the anti-Trump storyline. 


An Update On Retail Earnings: 'This Is Not Just Weather'

 

In this brief excerpt from The Macro Show earlier today, Hedgeye Retail analyst Alec Richards discusses earnings in the sector and why "every single company, with the exception of three, have guided down" this quarter.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.


Got a U.S. Recession? Profits Do

Takeaway: Only 4 of 10 S&P 500 sectors are showing positive earnings growth. That's very bad for U.S. equities.

Below is a brief update on where we stand in S&P 500 earnings season. 494/500 companies have reported aggregate EPS decline of -7.4% y/y.

 

CLICK TO ENLARGE

Got a U.S. Recession? Profits Do - s p 500 earnings

 

Why does this matter? Check out the chart below from our 1Q Macro Themes deck.

 

Click to enlarge

Got a U.S. Recession? Profits Do - EL profits

 

Bottom line? Two or more consecutive quarters of negative earnings growth always presages a crash in stocks.

 


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