Rates, Russia and Gold

Client Talking Points

RATES

Obviously with Industrial Production #Recession reported at -1.03% year-over-year yesterday (newsflash: JAN industrial/manufacturing data was not the “bottom”), the Fed had fundamental reason to ease … and while that surprised most, the data (not SPX futures) supports not tightening into a slow-down. This is a great time to be Long the Long Bond, Utes, and Gold! Vs. short Fins (XLF).

RUSSIA

Forget being long Oil’s chart for this last gusher towards $40 – the real juice in being long a Fed Easing (Dollar Down, Reflation Up) is going straight to the Putin vein and buying the Russian Trading System Index, +4.7% this morning and +19% in the last month! This should all end well.

GOLD

With so much whining about the SP500 “not being down much anymore”, why aren’t all the gurus long what’s actually working? Even better than Utilities (XLU) being +13.3% YTD (vs. Financials -6.2%) is long Gold +19.4%, baby! Dollar Down, Rates Down – just like in 2011, but it all happened faster this time, as growth expectations slowed.

 

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

Asset Allocation

CASH 63% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 7%
FIXED INCOME 26% INTL CURRENCIES 4%

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

REPLAY! MUST-SEE on HedgeyeTV | Restaurants & Consumer Staples LIVE $CMG $MCD $HAIN $DRI

https://app.hedgeye.com/insights/49748-must-see-on-hedgeyetv-restaurants-consumer-staples-live-interact

@Hedgeye

QUOTE OF THE DAY

I think that’s what competitors do: they compete, regardless of the score or situation.                                                                                               Bill Belichick        

STAT OF THE DAY

The very first St. Patrick’s Day parade took place in Boston (not Ireland) in 1737.


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