CLIENT TALKING POINTS
USD
The U.S. Dollar was down (again) -2.2% last week (-5.7% year-to-date) after both the PMI (50.4) and Consumer Confidence numbers slowed (again) on Friday. Markets are obviously questioning whether a Dovish Fed can replace actual growth with some version of stagflation, but USD is signaling immediate-term oversold inasmuch as Gold is signaling overbought.
JAPAN
One of the best ways to make money on the short side of Equities this year remains Japan – not only is the U.S. slowing (Dollar Down, Yen Up), but the #BeliefSystem is finally breaking down that Japan (or Europe) can do anything to stop it. The Nikkei is getting newsy though, signaling immediate-term oversold -3.1% overnight (-23% since July 2015).
COPPER
Instead of buy USD (not brave enough, yet!), we sent out SELL signals in both Oil (+5.2% last week) and Copper on Friday; both are signaling overbought inasmuch as USD is signaling oversold. Copper $2.31 is an important macro level for the stagflation vs. #Deflation debate; so far longer-term #Deflation is still winning.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
GIS
We have been LONG General Mills (GIS) since May 26, 2015. We still like the long-term story, that being said, there are a number of one-time items impacting volume growth that should self-correct in 4Q16 and FY17. GIS is currently trading at 13.9x EV / NTM EBITDA an all-time high for the company.
Looking past GIS, the entire Consumer Staples space feel like there is a Safety Trade/ZBB/M&A bid underneath the entire group. We maintain our long-term bullish stance on GIS, but giving the rapid acceleration to all-time highs in the YTD period, a correction is inevitable.
MCD
In a recent note to Real-Time Alerts subscribers, Hedgeye CEO Keith McCullough asked rhetorically, "What to buy?" "On pull backs to the low-end of my immediate-term risk range, I'd be buying more:
1. Long-duration Bond Exposures (TLT, ZROZ, EDV, etc)
2. Low-Beta Big Cap Stocks With Safe Yields (MCD, GIS, NKE, etc.)
3. Gold (GLD)"
McDonald's (MCD) has all the style factors we like for these turbulent markets, which explains why it's up 27% since we added it to Investing Ideas in August. Stick with it here.
TLT
Despite the weak U.S. GDP print, growth is very unlikely to rebound here in Q2. Don't get caught up in residual seasonality hopium. The confluence of steepening base effects amid the trending deterioration in economic momentum support our GIP Model forecast of a continued deceleration in the YoY growth rate of real GDP from +1.9% in 1Q16 to +1% in 2Q16E. The latter growth rate translates to +0.3% on a QoQ SAAR basis, which is up from our previous forecast of -0.5% (a lower base rate implies a smaller delta to get to the same numbers, all things being equal).
Assuming Q1 isn’t revised in any material way, our forecast for 1H16E is represents the slowest pace of domestic economic growth on a multi-quarter basis since 2H12. Any downside surprises from there will surely translate to renewed recession fears.” Giddy up for continued #GrowthSlowing!
The good thing about each of our active Macro positions (i.e. TLT, ZROZ, XLU and JNK) is that each of them typically works on an absolute return basis when growth slows.
Asset Allocation
| CASH | 61% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 4% | |
| FIXED INCOME | 29% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
REPLAY! This Week On HedgeyeTV https://app.hedgeye.com/insights/50597-replay-this-week-on-hedgeyetv… via @hedgeye
@KeithMcCullough
QUOTE OF THE DAY
Start where you are. Use what you have. Do what you can.
Arthur Ashe
STAT OF THE DAY
By Uni Watch's count, there were 22 teams in the four major pro leagues (MLB, BFL, NBA, NHL) that either came into existence or were reborn with a new team name in the 1990s. Of those 22 teams, half of them (11) used purple and/or teal in their inaugural color schemes.
