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Client Talking Points

OIL

There is nothing quiet about this short-squeeze in oil (up another +4.6% yesterday and +37% in the last month alone for WTI; still -24% year-over-year). The immediate-term risk range for WTI has widened out to $30.89-38.99 with @Hedgeye TAIL risk resistance = $46.11.

EURO

Down small to $1.09 EUR/USD ahead of ECB President Mario Draghi’s attempt to walk on water. The immediate-term risk range is $1.08-1.11; hedge fund bets are all over the place on what happens here today – we say embrace the uncertainty and read & react.

DAX

The DAX is doing nothing into the event, but don’t forget that it’s still in crash mode (-22% from last year’s high) so any Japanese style break-down in the belief system that central planning can ramp asset prices higher is a real risk.

 

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

Asset Allocation

CASH 67% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 25% INTL CURRENCIES 4%

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

NEW VIDEO | The Very Real Possibility Of A Contested #GOP Convention https://app.hedgeye.com/insights/49638-washington-on-wall-street-the-very-real-possibility-of-a-contested-go… @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

When you win, nothing hurts.

Joe Namath

STAT OF THE DAY

The cost of companies losing valuable people can be as high as $188 billion per year.