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Euro, Italy and Oil

Client Talking Points

EURO

The belief system needs the transmission mechanism (Burning Euros) in play to “reflate” European stocks. So, “off the highs” in yesterday’s epic big bang EUR/USD ramp, Euro -0.7% gives birth to a new hope that doing whatever it takes is going to arrest an almost 3 year European economic expansion from slowing.

ITALY

If you’re still trying to day-trade the break-down in the belief system, the Italian Stock Market is where it’s at! After crashing -33% from last year’s economic cycle high to “up” then down hard into the close yesterday, bank stocks straight up (again) to lower-highs this morning – massive TREND resistance overhead for MIB index at 19,347.

OIL

Oh, right, that’s going on too. Oil up +2.1% this morning is another big-bite reason to keep reflation bulls in the game here – immediate-term risk range (dynamic) $31.66-39.45/barrel for WTI as Oil Volatility’s risk range remains surreal at 48-60. We are much more bearish on the Financials than Energy, but would love another shot (short side) closer to $40 Oil.

 

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

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 24% INTL CURRENCIES 6%

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. 

Three for the Road

TWEET OF THE DAY

$HIBB inventories +18% on sales growth of 2.7% and comp of (-0.6%). That's after 25%YTD gain and 13% draw-down in short interest.

#ShortMore

@HedgeyeRetail

QUOTE OF THE DAY

You know, Willie Wonka said it best: we are the makers of dreams, the dreamers of dreams.

Herb Brooks

STAT OF THE DAY

You know, Willie Wonka said it best: we are the makers of dreams, the dreamers of dreams.

Herb Brooks


The Macro Show Replay | March 11, 2016

CLICK HERE to access the associated slides.

 

An audio-only replay is available here. 

 


Cartoon of the Day: Off To See The Wizard

Cartoon of the Day: Off To See The Wizard - ECB cartoon 03.10.2016

 

ECB head Mario Draghi pulled out all the stops today but macro markets weren't buying it. "The Central Planning Belief System is breaking down," Hedgeye CEO Keith McCullough wrote. "This is the beginning of the end."


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Call Invite | Don Kohn Previews the FOMC Meeting

Takeaway: Join us next Monday, March 14 at 11:00 a.m. ET, for a call with former Fed Vice Chairman Don Kohn to preview the March 15-16 FOMC meeting.

Don Kohn Previews the FOMC Meeting

 

The Potomac Research Group - A Hedgeye company - will be hosting a call with former Fed Vice Chairman Don Kohn Monday, March 14 at 11:00 a.m. ET to preview the March 15-16 FOMC meeting. Don will offer his outlook on the labor market, inflation, consumer spending, manufacturing data, and other factors that will factor into the Fed's rate hike calculus. 

 

Participating Dialing Instructions

Toll Free:

Confirmation Number: 13630084

 

Don Kohn's Bio:

Don is an expert on monetary policy, financial regulation and macroeconomics and serves as the Senior Economic Strategist for the Potomac Research Group. He brings 40 years of experience working for the Federal Reserve, where he was a key adviser to the last three Federal Reserve chairmen and served as a member and then Vice Chairman of the Board of Governors from 2002 to 2010.  

 

Don has written and published extensively on monetary policy and its implementation and on a variety of other subjects related to central banking.  He chaired an important international committee of central bankers through the period of the recent financial crisis.  He received a B.A. in economics from the College of Wooster and a Ph.D. in economics from the University of Michigan.


A Look At Last Night's Democratic Debate... & The Flood Of Anti-Trump Money

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.

MIAMI MELEE:

 

A Look At Last Night's Democratic Debate... & The Flood Of Anti-Trump Money - hillary clinton

 

Last night's Democratic debate was supposed to be last one on the official schedule (two more have been added), and would have been the final punctuation mark in Hillary Clinton's clinching of the nomination had she not been upset in MI. Bernie Sanders, reanimated by his Tuesday win, largely fought her to a draw.

 

We continue to get the sense that Team Clinton is discounting Sanders' tenacity, even after all that's happened. She had a lot of good moments last night, but she still lacks coherence on her Wall Street speeches, and she doubled down on iffy attack lines about the auto bailouts, immigration, and health care that are unlikely to stick. She's not any less likely to be the nominee after this week, but her inability to put Sanders away has her supporters rightly concerned anyway. 

SANDERS' SLOG:

 

A Look At Last Night's Democratic Debate... & The Flood Of Anti-Trump Money - bernie sanders image

 

Sanders' surprise win in MI will not win him the nomination, but it has certainly added another dimension to the race as the primary trudges onward. Wins like MI will allow Sanders to continue to land jabs on Clinton's more centrist stances, and the longer he contests the primary the more she'll be dragged to the left.

 

Call it a broken record or call it message discipline, but Bernie's core themes are as clear as ever, while Clinton's remain a mosaic of policy proposals that she hasn't been able to bring into focus. Her inevitable drift leftward may not hurt her much if Trump is her opponent in the general election, but it has a big impact on how she'd have to govern as president. 

THROWING MONEY AWAY?

 

FL's primary next week is the first major, and possibly last, test of the anti-Trump movement. In FL, outside groups have purchased over $12 million in attack ads aimed at Trump -- a princely sum compared to the less than $10,000 spent on anti-Trump buys in both MI and MS. Efforts to oppose Trump have been disorganized and ineffective, and we'll see if the bruised establishment's efforts pay off at all in Florida -- though we expect it'll do little to move the needle.


Why Jobless Claims Suggest Recession May Be Closer Than You Think

Takeaway: We may be mere months away from U.S. recession according to jobless claims.

Editor's Note: See today's 259k jobless claims print? That's not the bullish harbinger many investors make it out to be. In fact, it might just be the last shoe to drop before a recession sinks in. That's one of the key takeaways from a recent institutional research report written by our Financials analysts Josh Steiner and Jonathan Casteleyn. Below is a brief excerpt. To get full research access email sales@hedgeye.com.

 

Why Jobless Claims Suggest Recession May Be Closer Than You Think - late cycle

 

EXCERPT FROM RESEARCH REPORT: 

 

"... While we may sound a bit like a broken record on this point, we still think it bears repeating that the cycle is late stage. The chart below shows that there has historically been a time limit on how long the labor market can run this hot.

 

The chart shows that in the last three cycles, claims have run below 330k for 24, 45, and 31 months before recession set in. The current sub-330k run just entered month 25. That puts us one month past the minimum, 8 months from the 33-month average, and 20 months from the 1990s record-setting expansion."

 

CLICK TO ENLARGE

Why Jobless Claims Suggest Recession May Be Closer Than You Think - jobless claims


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