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POSITION MONITOR

POSITION MONITOR  - CHART 1

 

RECENT NOTES

2/29/16 UNFI | ZERO VISIBILITY

2/26/16 KHC | BLINDED BY THE MARGIN

2/25/16 REPLAY | KHC SHORT THESIS

2/12/16 NUS | “LAID AN EGG”

2/10/16 GIS | LONG | THINGS TO THINK ABOUT

2/9/16 THOUGHTS ON CONSUMER PACKAGED GOODS (GIS, CAG, WWAV, LNCE, HAIN, PF)

 

SECTOR PERFORMANCE

Food and organic stocks that we follow underperformed the XLP last week. The XLP was up +0.8% last week, the top performers on a relative basis from our list was United Natural Foods (UNFI) and Hain Celestial (HAIN) posting increases of +13.8% and +4.0%, respectively. The worst performing companies on a relative basis on our list were J&J Snack Foods (JJSF) and Post Holdings (POST), which were down -3.3% and -3.4%, respectively.

POSITION MONITOR  - CHART 2

 

XLP VERSUS THE MARKET

POSITION MONITOR  - CHART 3

 

Food and Organic Companies

POSITION MONITOR  - CHART 4

POSITION MONITOR  - CHART 5

POSITION MONITOR  - CHART 6

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


Doubling Down

Client Talking Points

GERMANY

Well, the ECB threw everything (including the kitchen sink) at the tape last week and you know what the DAX did? It closed +0.1% on the week to -8.5% year-to-date. Now what? Angela Merkel was just defeated in 2 of 3 states holding regional elections as A) Germany’s economic cycle continues to slow from recent peak and B) anti-migration exit polls ramp.

RUSSELL 2000

“Everything we’ve been saying” includes not being long small caps and/or junk bonds. The Russell 2000 was only up +0.5% last week (yes, we can take a lot more pain than that) to -4.3% year-to-date and -16.1% since we went broadly bearish on U.S. stock market beta in July.

UST 10YR

With the UST 10YR up +10 basis points last week to 1.98%, now it’s go time (again) for the Long Bond and Utilities (XLU) bulls who are having a great year vs. “Long Financials During Rate Hike Cycle” view  (XLU +11.3% YTD vs XLF -5.6%). Is the Fed going to be hawkish this week? We think so – but so does everyone else; we think rates and Financials drop on the “news” like they did post rate hike.

 

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

Asset Allocation

CASH 62% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 26% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
XLU

Utilities (XLU) remains the alpha generating trades in equities, year-to-date XLU is up 11.3% versus -1.1% for the S&P 500. Factor exposure is very important to us, especially when volatility is in a bullish TREND set-up and small cap, illiquid stocks continue to underperform. Here's another way to look at it:

Volatility

+ Illiquidity

+ Too many hedge funds chasing performance...

= #Pain

We continue to expect utilities to outperform the broader market given this current environment.    

GIS

This stock is not likely going to go up 20% in the next year, but we do believe it will fare better than most in the consumer staples sector, especially as we head into an economic slowdown. That's why GIS is up 5.5% year-to-date versus down -1.4% for the S&P 500.

 

In the past few newsletters we've noted the effect Walmart is having on GIS, how its Yogurt business is faring against competitors, and how the company is broadening the distribution of its top 450 SKUs. On the M&A front, barring any screaming deals in the market place we don’t see General Mills (GIS) buying anything over roughly $1 billion in sales, just given the added complexity it would cause. So they will most likely continue the string of pearls approach in the Natural & Organic/Snacking categories. This does not rule out the possibility of GIS being bought, 3G & Kraft Heinz could be getting back in the mix as well, although it seems too soon for another deal this big.

TLT

Growth and inflation continue to decelerate in the Eurozone and globally. In other words, there is very little central planners can do to stop the cycle and the inevitable deleveraging that must take place in credit Long-Term Treasuries (TLT) remains the alpha generating trade in fixed income this year. 

Three for the Road

TWEET OF THE DAY

No chance FTC would allow single chinese company to buy 2 large US hotels. HOT hoping MAR matches $76 $MAR $HOT

@GLLStrategist

QUOTE OF THE DAY

Rebalancing represents supremely rational behavior.

David Swensen

STAT OF THE DAY

Starwood receives nearly $14 billion buyout bid from a consortium led by China's Anbang Insurance Group (Marriott International Inc. has already bid for Starwood in a deal worth $12.2 billion).


CHART OF THE DAY: The Supremely Long-Term Tail Risk Wagging The Economic Dog

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... Since the Supremely Long-Term TAIL risk wagging the economic dog here remains a demographic (aging – see Chart of The Day) one, I’m most impressed with long-term investor returns that have nailed that. Slower (growth) for longer has equated to supreme alpha for buy-and-hold investors in long-term sovereign bonds."

 

CHART OF THE DAY: The Supremely Long-Term Tail Risk Wagging The Economic Dog - 03.14.16 Chart


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Supremely Long-Term

“Rebalancing represents supremely rational behavior.”

-David Swensen

 

In reviewing my old college economic-cycle-top notes (there have been 3 since I graduated = 1999, 2007, and 2015), I came across this one from Yale Endowment chief asset allocator, David Swensen.

 

While I don’t think anyone is “supremely rational” when it comes to investing at economic cycle tops and bottoms, I do find it interesting to observe human behavior as the signs of topping (and bottoming) processes become more obvious.

 

Swensen wrote that in the year 2000 stating that “disciplined rebalancers need to sell what’s hot and buy what’s not.” If you have a supremely long-term investment horizon, that’s probably going to work more often than it doesn’t. If you’re like > 90% of money managers out there today, chasing monthly and quarterly returns – not so much.

 

Back to the Global Macro Grind

 

If you’ve been rebalancing into anything related to the Federal Reserve’s 2008-2012 (US Dollar all-time lows 2011) Commodity Bubble, you’ve had quite the headache for the last 3 years.

Supremely Long-Term - Deflation cartoon 12.17.2015

 

If you just started buying them in 2016, you’re feeling like you might have called the bottom. If you were long commodities vs. short Long-term Treasuries, you’ve had a rough year – but you killed it last week!

 

I obviously got killed last week. It happens and it sucks. While I’ve been much more bearish on both rates and the Financials (XLF) in 2016 than I have been on commodities and/or their related equities, the only thing that really worked for me last week was long Utilities (XLU). While the “YTD” is pretty short-term in the context of Swensen’s time-horizon, the YTD score still matters:

 

  1. US Dollar -1.2% on the week to -2.5% YTD
  2. Euro (vs. USD) +1.3% on the week to +2.7% YTD
  3. Canadian Dollar (vs. USD) +0.7% on the week to +4.6% YTD
  4. Commodities (CRB Index) +3.0% on the week to -1.5% YTD
  5. Oil (WTI) +7.3% on the week to -1.5% YTD
  6. Gold -1.5% on the week to +17.9% YTD
  7. SP500 +1.1% on the week to -1.1% YTD
  8. EuroStoxx600 +0.1% on the week to -6.4% YTD
  9. Canadian Stock Market (TSE) +2.3% on the week to +3.9% YTD
  10. US Treasury (10yr) Yield +10 basis points on the week to -29 basis points YTD

 

In other words, the closer you were (last week) to being long what hasn’t worked for 3 years, the better you’d have done. That’s why longer-term investors who have been right on longer-term growth and inflation expectations had a supremely bad week!

 

What is a “longer-term investor”?

 

  1. Someone who just buys, averages down, and holds, forever?
  2. Someone who gets the longer-term fundamentals right?
  3. Or neither? (I’m not marketing a fund here, so happy to consider other definitions)

 

Since the Supremely Long-Term TAIL risk wagging the economic dog here remains a demographic (aging – see Chart of The Day) one, I’m most impressed with long-term investor returns that have nailed that. Slower (growth) for longer has equated to supreme alpha for buy-and-hold investors in long-term sovereign bonds.

 

Great Keith – you still sucked last week.

 

Yep. And I’ll suck even more this week if I’m wrong on the economic cycle. But that’s been my “catalyst” since telling you to “rebalance” out of Small Cap, High Leverage, High Beta stocks, 8 months ago.

 

That’s right. Tell your boss (in my case, my wife) that there’s a guy in Stamford, CT whose research team keeps reiterating that the catalyst to be long:

 

  1. Long-term US Treasuries (TLT) = +5.6% YTD (ex the yield)
  2. Utilities (XLU) = +11.3% YTD (ex the yield)
  3. Gold (GLD) = +17.9% YTD (there is no yield!)

 

Has been, and continues to be, The Cycle.

 

Especially on #LateCycle consumption, employment, and profit metrics (isn’t it sad that Consensus Macro isn’t talking about those?), we’re actually at the YTD lows (see SP500 Earnings, Pending Home Sales, and ISM Services for details).

 

But, but, but…

 

On cyclical stuff that has been crashing for 1-3 years, we’re “off the lows”, bros! And the Fed is going to be hawkish about that on Wednesday because:

 

  1. Deflation In Commodities has had another short-term “reflation” (isn’t that “transitory” btw?)
  2. Late Cycle Employment reports (while slowing in rate of change terms) are still “good”

 

So, they’ll stay tight into an economic slow-down (like they did in raising rates in December). Wouldn’t it be a shocker if the US Dollar goes up on that this week and that we go back to what’s been right since July (selling all reflation rallies)?

 

I know. That’s supremely short-term. Hopefully my sucking wind is too.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.75-1.99%

SPX 1
RUT 1036-1099
USD 95.83-97.38
Oil (WTI) 32.21-39.92

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Supremely Long-Term - 03.14.16 Chart


The Macro Show Replay | March 14, 2016

CLICK HERE to access the associated slides.

An audio-only replay is available here.

 

 


REPLAY! This Week On HedgeyeTV

Our deep bench of analysts take to HedgeyeTV every weekday to update subscribers on Hedgeye's high conviction stock ideas and evolving macro trends. Whether it's on The Macro ShowReal-Time Alerts Live or other exclusive live events, HedgeyeTV is always chock full of insight.

 

Below is a taste of the most recent week in HedgeyeTV. (Like what you see? Click here to subscribe for free to our YouTube channel.)

 

Enjoy!   

 

 

1. McCullough: The Beginning of the End (3/10/2016)

 

 

In this excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough discusses the latest “Viagra” monetary policy moment, and why central planners’ days are numbered.

  

2. Washington on Wall Street: The Very Real Possibility Of A Contested GOP Convention (3/9/2016)

 

 

Following Tuesday’s presidential primary contests, Hedgeye Director of Research Daryl Jones walks through the key takeaways, including the historical context around previous contested conventions and potential stock market implications.

 

3. Why We’re Keeping a Close Eye on Wynn (3/9/2016)

 

 

In this brief excerpt from The Macro Show this morning, Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan distills what’s going on with Wynn Resorts (WYNN) right now, why it matters to Macau, and what to expect going forward.

 

4. Howe: The Biggest Change In Immigration Since The Great Recession (3/9/2016)

 

 

In this excerpt from a recent institutional presentation, Hedgeye Demography Sector Head Neil Howe explains why the fertility rate is the biggest leading indicator of immigration trends.

 

5. An Update On Retail Earnings: 'This Is Not Just Weather' (3/8/2016)

 

 

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.

 

6. Howe: ‘Trump Will Run To The Left Of Clinton’ (3/11/2016)

 

Click here to watch. 

REPLAY! This Week On HedgeyeTV - HETV macroshow thumb howe f 

 

Hedgeye's Demography Sector Head Neil Howe made a bold prediction on today's edition of The Macro Show. According to Howe, in the general election, Donald Trump will pivot to the left of Hillary Clinton to scoop up the Bernie Sanders crowd.


the macro show

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

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