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Client Talking Points

JAPAN

The Nikkei was annihilated -3.6% last night after ending Q1 with 3 straight down days (it’s back in #crash mode at -22.5% since U.S. stocks peaked when the G7 Equity Bull Market Cycle peaked in July of 2015). The #BeliefSystem on central-market-planning is breaking down, hard, right where it all began (Krugman said “print lots of money” 1980s, and they did).

EUROPE

So Janet Yellen Devaluing Dollars into Q1 end doesn’t get everyone a sticker? Dollar Down pushes Yen and Euro Up causing Japanese and European stocks to move back into crash mode with DAX starting Q2 -1.7% and -21% since The Cycle peaked in 2015.

UST 10YR

The Long Bond remains the best (and most liquid low volatility) way to stay in synch with our 1H 2016 #GrowthSlowing call. The UST 10YR Yield of 1.78% makes bonds overbought into the jobs report; so think about trimming some of that core in the 1.75-1.80% range so that you can reload on long in the 1.90-2.0% range – think about risk managing Utilities (XLU) longs that way too.

 

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

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
CME

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.

GIS

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.

TLT

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:

  1. High Beta stocks were -2.0% on the week
  2. High Leverage (Debt/EBITDA) stocks were -1.9% on the week
  3. High Short Interest stocks were -1.7% on the week

 

Three for the Road

TWEET OF THE DAY

NEW VIDEO | McCullough: Shame On You Mark Zandi https://app.hedgeye.com/insights/50046-mccullough-shame-on-you-mark-zandi… via @KeithMcCullough #GDP #Economy #OldWall

@Hedgeye

QUOTE OF THE DAY

Most people never run far enough on their first wind to find out they’ve got a second.

William James                                                   

STAT OF THE DAY

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