CLIENT TALKING POINTS

CHINA

USA’s ISM slows (50.8), China’s PMI slows (49.4)… We are guessing demand hasn’t “bottomed.” The Hang Seng (getting little to no air-time these days) got smoked for a -1.9% loss overnight, only down -27% from where you could have bought it in May of last year.

EURO

Isn’t the Fed burning the U.S. Dollar and Wall St begging for more fun? Not in Japanese and European stock “chart” terms; the Euro is testing $1.16 vs. USD this morning (almost a 4 standard deviation move) and European Equity markets remain in crash mode from their 2015 highs (draw-downs: DAX -20%, Spain’s IBEX -25%, Italy’s MIB -25%).

GOLD

Instead of down -20% to -27%, Gold is already +22% for the year-to-date! That remains in our Top 3 Macro Long Ideas (Macro Themes Deck) alongside the Long Bond and Utilities (XLU) – these ideas all reflect the same view that #GrowthSlowing globally (i.e. economic gravity) can’t be fixed by a central market planning #BeliefSystem this time.

*Tune into The Macro Show with Hedgeye Restaurants & Consumer Staples analyst Howard Penney live in the studio at 9:00AM ET - CLICK HERE

TOP LONG IDEAS

GIS

GIS

Please note we are removed General Mills (GIS)  from Investing Ideas (long side) on Monday. Hedgeye CEO Keith McCullough wrote in Real-Time Alerts: "While I like GIS from a Style Factor perspective (it did its job last week, closing up in a down tape - doing its job again this a.m. +1%), it's:

A) Signaling a series of lower-highs from a long-term perspective

B) Not as well loved by my analyst team (Penney and Laidlaw)

While we still like the long-term story, the stock’s performance in 2016 has been nothing short of spectacular. Year-to-date GIS is up +7.8% versus +1.3% for the S&P 500. The company’s 3Q15 performance was mixed with the company missing on revenues and beating on EPS with the benefit of cost cutting.

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 given the rapid acceleration to all-time highs in the YTD period, a correction is inevitable.

MCD

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

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 60% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 4%
FIXED INCOME 30% INTL CURRENCIES 6%

THREE FOR THE ROAD

TWEET OF THE DAY

RISK MGMT ALERT via @KeithMcCullough:

"The Most Important Point I’ll Make Today" https://app.hedgeye.com/insights/50663-mccullough-the-most-important-point-i-ll-make-today… $SPY

@Hedgeye

QUOTE OF THE DAY

Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.

Thomas A. Edison

STAT OF THE DAY

Drake’s VIEWS album sold a reported 630,000 copies in one night after its release to iTunes and Apple Music on April 29th. Hits Daily Double reports that VIEWS will sell 1 million album equivalent units its first week.