Yen, Oil and Sectors

03/09/16 08:26AM EST

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

TOP LONG IDEAS

XLU

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

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

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.

Asset Allocation

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

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.

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