CLICK HERE to access the associated slides.
Please join us today at 1:00pm EST for a conference call highlighting our latest thoughts on emerging markets. Recall that the globally-interconnected, rigorously quantitative nature of our research led us to be appropriately bearish on the structural outlook for EM economies and their financial markets as far back as early 2013, ultimately reiterating that view on a subsequent conference call in late 2014. Now, we are keen to apply a similarly rigorous framework in the process of kicking the tires on the long side of emerging markets.
CLICK HERE to watch this presentation live.
KEY TOPICS OF DISCUSSION
- Have emerging market financial assets bottomed? Despite a broad-based rebound in EM asset prices throughout the YTD, the belief that many EM asset markets remain at/near trough valuations has some merit. In this presentation we identify and vet potential catalysts for a sustained recovery and/or another material leg down for EM capital and currency markets.
- Are the Chinese economy, its banking system and the yuan as vulnerable to collapse as investor consensus believes? Many investors seem to be of the view that China requires a material devaluation of the RMB to stave off banking crisis and/or outright economic collapse. Some investors actually believe each of those outcomes are inevitable. In this presentation, we offer our well-researched thoughts on the viability of these views.
- Which countries will outperform from here? The latest refresh of our proprietary EM Crisis Risk Index will offer valuable insights as to which countries investors should overweight and underweight from here.
- Toll Free:
- UK: 0 -
- Confirmation Number: 13631753
- Materials: CLICK HERE
- Video Access: CLICK HERE
As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.
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.
"... If Gold is down on the news, I’d be a buyer of that too. You see, the ultra-bull case for Gold has been:
- Down Dollar
- Down Rates
When those two things are happening (at the same time) you’re good to go."
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“The anti-Gold reflex is intergenerational.”
Instead of telling yourself Old Wall Perma Bull stories that you’re “buying beaten down Financials” and/or “phew, the economy is back!”, imagine you woke up every morning in 2016 gearing yourself up to buy Long-term Treasuries (TLT), Utilities (XLU), and Gold (GLD)?
Wow, you’d be killing it.
I had both the pleasure and privilege to have a Real Conversation (Here’s the link) @HedgeyeTV with Jim Rickards yesterday about his brand new book: The New Case For Gold. Since I haven’t been bullish on Gold since 2012, I’m really starting to like this new idea.
Back to the Global Macro Grind…
As I’ve learned going into my 17th year on Wall Street, some of my best old ideas (I was a Gold Bull from 2003 to 2012) can become my best new ones. Like economies and profits, investment ideas and asset allocations are cyclical, after all.
Only battle-tested (and torn) buy-siders get that.
If you want to be a famous academic or journalist, you have to focus on never learning what buy-siders learn through investment cycles. You have to learn to A) never change your mind and B) keep defaming and demagoguing those who don’t have positions that agree with your famous ideology.
Who, btw, is the most famous ideological investor of all-time?
As are many of Rickards original research questions and thoughts, what’s awesome about being a Gold Bull right now is that the Perma Bears (ideologues who lost lots of money being short Gold from the 1999 generational breakout) are intergenerational!
“Among the older generation are PhDs who came of age in the wake of famous Gold bashers such as Milton Friedman. This generation includes Paul Krugman, Barry Eichengreen, Nouriel Roubini… these anti-Gold giants are now joined by a younger generation educated (or miseducated to believe that Gold has no place in a monetary system.” –Rickards (The New Case for Gold)
I won’t waste keystrokes rattling off the names of “reformed” brokers, repurpose-other-people’s-content-bloggers, and click-bait-journos. You know who they are. From a macro investing process and historical knowledge perspective, these are some of the most underwhelming market pundits in US history.
Jim Rickards, on the other hand, can forget more about Gold history on the way to the bathroom than I’ll ever know.
I don’t wake up in the morning thinking that I know everything and/or have the hubris to assume that without a constant grind (reading a book every 10 days) and a 40 person Research Team that I’d know anything at all.
God willing, the legacy of Hedgeye will be that I either hired or partnered with the world’s most objective domain experts.
Now that you have my multi-duration, multi-factor, #Collaboration speech out of the way, what do you do into and out of the US Federal Reserve’s decision today (which is mostly priced in) to remain pro-cyclically hawkish?
- USD (TREND bullish) – up on the week (into the news), so I’d be a seller of US Dollars on any incremental strength today
- RATES (TREND bearish) – up last week (into the news), so anywhere > 2.00% on the 10yr, I’d be a buyer of LT Treasuries
- STOCKS (TREND bearish) – since I covered our Financials (XLF) short on red last week (expecting hawkish), I’d sell today
If Gold is down on the news, I’d be a buyer of that too. You see, the ultra-bull case for Gold has been:
- Down Dollar
- Down Rates
When those two things are happening (at the same time) you’re good to go.
Since my call (since July) has been that long-term US Interest Rates would reverse to all-time lows (despite a “rate-hike”) I’m more confident in the Down Rates catalyst than I am in the Down Dollar one.
With time, all macro correlations change. And what’s been happening from a Correlation Risk perspective is that Gold has been de-coupling from an intense and pervasive inverse-correlation between USD and Commodities (CRB Index).
What that tells me is that the Rickards view of Gold not being a “bag of rocks” or a “weed” like commodity has not only always been true (it’s an element), but that it should earn an investment premium as an alternative to “negative yields.”
Is it true that Gold has no “yield”? Yes.
But it’s also true that the Russell 2000 (-1.6% yesterday, -6.1% YTD, and -17.8% since the US economic cycle peaked in July) doesn’t either. What Gold has right now is what you need – absolute return. That need is intergenerational too.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.78-2.02%
Oil (WTI) 33.82-39.53
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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.
|FIXED INCOME||24%||INTL CURRENCIES||6%|
Top Long Ideas
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:
+ Too many hedge funds chasing performance...
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
TWEET OF THE DAY
Rickards: Why Gold Is Going To $10,000 https://app.hedgeye.com/insights/49747-rickards-why-gold-is-going-to-10-000… via @hedgeye
QUOTE OF THE DAY
Whenever you find yourself on the side of the majority, it’s time to pause and reflect.
STAT OF THE DAY
50 billion burgers are consumed in America per year.
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.
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