Client Talking Points
Isn’t this getting fun? We’re pretty sure Janet Yellen never played team sports, so maybe we shouldn’t be surprised that her Fed forecasting team is all over the place at this point in talking to markets about rate hikes and USD. Massive inverse Correlation Risk continues to drive daily market moves with USD to CRB and SPY running -0.81-0.96 in March.
As opposed to v-bottoms on the SPY short-side, the long side has been easy year-to-date – as #GrowthSlows, Fed Easing has pounded the UST 10YR down to 1.81% (2YR just went from 0.90% to 0.77% in less than a week on Fed Head confusion) and Utilities (XLU) continued to lead the way on yesterday’s Yellen Ramp, closing up another +1.5% = +14.3% year-to-date XLU.
Heck, why buy Utes on Yellen turn-tailing dovish when you can go right to the vein and buy Gold? It was +3% yesterday (vs. Financials barely up at +0.18% XLF #terrible) to +17% year-to-date leading most things in absolute return space which we highly doubt will be trumpeted more than “the S&P is up” (+0.5% year-to-date) all day today (into month-end markups).
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
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Top Long Ideas
CME Group (CME) put up a decent fourth quarter earnings print with a slight revenue and earnings beat. Not that we put much weight on what happened last quarter but trends into the new operating period are looking even better. The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, at over 111 million contracts.
Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials.
We continue to like General Mills (GIS) as one of the best large cap names in the packaged food space. With that being said, the third quarter was not without its noise surrounding the numbers; Green Giant divestiture, Walmart clean store policies, foreign currency exchange, and grain merchandising just to name a few, muddied the waters. But digging through the noise, this is a business that is truly turning a corner. When they set sail on fiscal year 2016 back in June of 2015, we knew this was not going to be an easy ship to turn towards success. Now, with many key product platforms turning (through strong product innovation and renovation) in the right direction and operational improvements implemented through cost savings initiatives, GIS is on the cusp of success. We will be measuring this success by realization of sustained top line growth in the low single digit range.
In our model the second quarter is the toughest compare on both GDP and U.S. corporate profits so we want to be very careful going into that and be positioned defensively. Stay long Long-Term Treasuries (TLT).
While small/mid cap U.S. Equities reverted to their bear market mean last week (Russell 2000 down -2.0% on the week and -16.7% since US Corporate Profits peaked in Q2 of 2015), so did a few other US Equity Market Style Factors that had had a big 1-month bounce:
Three for the Road
TWEET OF THE DAY
The #Airbnb Impact On #Hotels & Timeshare https://app.hedgeye.com/insights/49984-the-airbnb-impact-on-hotels-timeshare… via @HedgeyeSnakeye @KeithMcCullough
QUOTE OF THE DAY
Courage is grace under pressure.
STAT OF THE DAY
A recent study drawing on 16 billion e-mails sent by more than 2 million people found that more than 90% of replies are sent within a day.