This Is Getting Fun

Client Talking Points

EUROPE

Yet another intraday ramp in U.S. stocks yesterday on “Fed Dovish” (Fed Minutes) – wow is this getting fun. But what does dovish do when the #BeliefSystem on central-market-planning is breaking down? Draghi + Constancio were both out this morning trying “whatever is needed.” Draghi says he “will not surrender.” The Euro is only moving -0.1% on that; Spanish and Italian stocks barely up and remain in crash mode.

YEN

Yellen for Yen President! The Yen is at $108 now vs. USD and is finally signaling immediate-term TRADE overbought within a bullish TREND and the Nikkei stopped going down (post 7 straight down days), albeit only +0.2%. We thought Janet was focused on “stabilizing the global economy”, not imploding Japanese and European stock markets.

OIL

No follow through to the +5.1% WTI day as the pop in this inverse correlation trade runs into resistance; immediate-term risk range for WTI is now $35.04-40.25 (top end of the range used to be closer to $42-43). We’ll be hosting our Q2 Macro Themes Call at 11:00AM ET.

 

*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 7%
FIXED INCOME 24% INTL CURRENCIES 3%

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

Live Healthcare Q&A with Tom Tobin Thursday at 2:15PM ET | $ZBH $AHS $MD $HCA $HOLX

FREE: https://app.hedgeye.com/insights/50147-live-healthcare-q-a-with-tom-tobin-thursday-at-2-15-pm-et-zbh-ahs

@Hedgeye

QUOTE OF THE DAY

When you win, say nothing. When you lose, say less.

Paul Brown

STAT OF THE DAY

Volkswagon’s VW XL1 uses barely 0.004 gallons of fuel every mile (261 mpg).