Hawkish Expectations

Client Talking Points


Not surprisingly, the USD is up (this week) into the “relatively hawkish” #LateCycle Employment Fed statement – but how much USD (and rates) upside is there? Not much, for now as both the Japanese and European #BeliefSystem of FX devaluation continues to break-down, pressuring USD inasmuch as slowing housing and consumption data does.


Right there with the Financials (XLF -6.0% year-to-date) as Best Ideas Shorts in 2016 year-to-date is the Russell 2000 (down -1.6% yesterday to -6.1% year-to-date) as both a are much purer play on the short side of the U.S. economy slowing than the global one. We know that doesn’t fit the perma bull narrative. But it does fit yesterday’s U.S. Retail Sales and Housing (NAHB) data! #slowing.


Another Sector Style that continues to underperform in 2016 (XLV down -1.7% yesterday to -6.7% year-to-date, with Biotech, IBB, -3.8% on the day). We know. We know. It was Valeant( VRX). But remember what the macro message is there – don’t be long storytelling, leverage, and “pricing” when the macro risk = #Deflation.


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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:


+ Illiquidity

+ Too many hedge funds chasing performance...

= #Pain

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


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.


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


Rickards: Why Gold Is Going To $10,000… via @hedgeye



Whenever you find yourself on the side of the majority, it’s time to pause and reflect.

Mark Twain        


50 billion burgers are consumed in America per year.

REPLAY | Restaurants & Consumer Staples LIVE + Interactive

Our Restaurants and Consumer Staples analysts Howard Penney and Shayne Laidlaw were LIVE in the studio Wednesday at 2:15PM ET. The duo discussed key issues affecting investors including industry trends, recent developments and provide an overview of their best ideas.


CLICK HERE to download the slides for this presentation. 



Rickards: Why Gold Is Going To $10,000

Bestselling author Jim Rickards sits down with Hedgeye CEO Keith McCullough to discuss his new book, “The New Case for Gold,” and why a cocktail of factors makes it more critical than ever for investors to protect their portfolios with gold.


Follow Jim on Twitter @JamesGRickards

Purchase his book: “The New Case for Gold

Learn more at the JamesRickardsProject

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

We Think Valeant Still Has Over 40% Downside | $VRX

Takeaway: Our analysts have been bearish on Valeant for almost two years. Meanwhile, Wall Street's VRX price target implies 257% upside. Okay.

We Think Valeant Still Has Over 40% Downside | $VRX - Ackman cartoon 10.26.2015


Ka-boom ... Shares of Valeant Pharmaceuticals (VRX) were cut in half today after the company cut its 2016 revenue forecast by 12% and said a delay in filing its annual report could pose a debt default risk. Our Healthcare analysts Tom Tobin and Andrew Freedman have been warning about the company's "unsustainable business model" for a while now.



Here's the "VRX | Bear Case $20" note in its entirety:


We Think Valeant Still Has Over 40% Downside | $VRX - valeant


Never fear Valeant shareholders! Wall Street consensus still sees 257% upside from here.


Click to enlarge

We Think Valeant Still Has Over 40% Downside | $VRX - valeant price target


Now, that's obviously ridiculous. But so is the sell side's track record for predicting a VRX price target. Check out the chart below. Keep in mind that Valeant shares currently trade around $35. 


We Think Valeant Still Has Over 40% Downside | $VRX - graph valeant



Cartoon of the Day: Crude Or Crud?

Cartoon of the Day: Crude Or Crud? - oil cartoon 03.15.2016


Oil prices continue to fall despite Wall Street's continued predictions otherwise.

A Paradigm Shift In Retail Is Happening

Takeaway: We hit the point where e-commerce dollar growth surpassed Brick & Mortar. 2016 is officially ‘Game On’ for financial impact of e-comm.

Editor's Note: This is a brief excerpt from an institutional research note written by Hedgeye Retail analysts Brian McGough and Alec Richards. To access our institutional research please email


A Paradigm Shift In Retail Is Happening - z retail


Today’s 60bp negative revision for January Retail Sales (from +0.2 to -0.4%) was obviously disappointing, albeit not terribly surprising to anyone listening to retail conference calls over the past four weeks...


Let’s step away from the obvious for a minute and look at a powerful trend that’s actually investable...


Today, e-commerce accounts for 7.3% of total Retail Sales. A decade ago that number was 2.5%, and five years ago it was 4.4%. At face value we’re talking really small numbers…right? Not really. Consider this…in the fourth quarter, e-commerce accounted for 65% of all incremental Retail Sales


A Paradigm Shift In Retail Is Happening - retail sales 22 

That’s S-I-X-T-Y F-I-V-E percent! This ramped from 23% a year ago, and 45% in the prior quarter.



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