#BeliefSystem Crash

Client Talking Points

JAPAN

Big rip higher in the Yen to immediate-term overbought at 110 (vs USD) smoked Japanese stocks again, -2.4% Nikkei taking the crash from the July U.S. Equity market high of 2015 to -24.6% - negative yields is not working in Japan or Europe (DAX down -2.4% and -22.6% since last year’s top).

OIL

What went up to a lower-high and failed @Hedgeye TREND resistance of $46/barrel came straight back down – an 11% drop in the last week in WTI should back the machines off from chasing Energy related charts; risk range now = $35.09-38.64.

VIX

Forcing yourself NOT to buy/cover U.S. Equities at VIX 12-14 has saved/made you a lot of absolute and relative return since that July #Bubble High and that just happened again; FT with a long-only performance article this morning citing only 6% of Growth managers beating their bench in Q1 (worst since 1991).

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough, Demography analyst Neil Howe and Macro analyst Darius Dale live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 67% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 23% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald's (MCD) hit an all-time highs last week. "They can't chase Energy Charts today, so they're just dog-piling into our long calls on GIS and MCD," wrote Hedgeye CEO Keith McCullough on Friday.

 

We've said it before, McDonald's has all the style factors that we like during these turbulent macro market times; high market cap, low beta and liquidity. The stock is up 7.5% this year beating the S&P 500 by more than 600 bps. In August 2015, Restaurants analyst Howard Penney wrote that "2015 will be the last time this stock is below $100."

CME

CME Group (CME) stock is among the small cohort of financial companies that benefit from volatile markets. With the exchange's open interest continuing to expand, which will drag trading volume higher, CME Group is one of the few lower beta longs that will hold up relatively better in the current environment.

 

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.

TLT

Non-Farm payroll additions came in over +200 again (+215K to be exact) and private sector wage growth was also “good,” increasing +4.2% year-over-year on Friday. We’re most concerned with "better" or "worse" from a rate of change perspective. The non-farm payroll number is "less good" (i.e. "worse") from a year-over-year rate-of-change perspective. Growth in non-farm payrolls peaked in February 2015 at +2.3% year-over-year and the trend since then has been one of decline (+2.0% Y/Y for March 2016). And private sector salary and wage growth peaked on a year-over-year percent change basis in December of 2014.

 

We remain bullish on Long Bonds (TLT and ZROZ), Utilities (XLU) and short Junk Bonds (JNK). We expect more alpha after what was a great Q1, as the back-end of the Treasury curve continues to get flatter regardless of Fed rate hikes. We were alone in that camp, in December, when we first told you that a rate hike was in fact good for long-duration Treasury bonds. Stick with what's worked.

 

Here's the Q1 2016 Scorecard (data through 3/31):

  • TLT +8.3%
  • XLU +14.7%
  • JNK +1.0%
  • versus S&P 500 +0.7%

Three for the Road

TWEET OF THE DAY

About Everything: A Perfect Storm of Trends Points to Less Interest In "Things" https://app.hedgeye.com/insights/50098-about-everything-the-immaterial-world … via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

You can be comfortable or you can be courageous. But you cannot be both.

D.Partridge

STAT OF THE DAY

32% of international students studying in the U.S. in 2015 were from China.