CLIENT TALKING POINTS
EUROPE
Buckle in Europe and Japan, that is… most European stock markets signaling immediate-term oversold but the Euro is not obeying overlord Draghi up at $1.149 this morning. European Equities remain in crash mode from last year’s Global Equity Bubble highs; Spain is now -26.3% since this time last year with an election (for socialism) pending June 26.
NASDAQ
We are done apologizing for adding Nasdaq to our bearish U.S. Growth Equity call on March 31; it was a battle, but month-over-month the Composite Index is -3.1% (S&P 500 is -0.2%, not up, so chart chasers are having some issues on the long side here); Big Cap Tech in a dead heat with Financial (XLF) and Healthcare (XLV) for worst S&P Sector YTD.
UST 10YR
Getting us paid with 1.79% registered on the UST 10YR yesterday and that seems to be holding this morning ahead of the U.S. Jobs report this week; imagine jobs do what they always do at the end of #TheCycle (when profits are negative year-over-year)? Oh boy. All-time low in U.S. Yields a probable event on any kind of an NFP bomb.
*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE.
TOP LONG IDEAS
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
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 | 59% | US EQUITIES | 2% | |
| INTL EQUITIES | 0% | COMMODITIES | 3% | |
| FIXED INCOME | 30% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
PRESS RELEASE
Healthcare Policy Expert Evans Joins Hedgeye https://app.hedgeye.com/insights/50670-healthcare-policy-expert-emily-evans-joins-hedgeye… @KeithMcCullough @HedgeyeEEvans
@Hedgeye
QUOTE OF THE DAY
I never left the field saying I could have done more to get ready and that gave me peace of mind.
Peyton Manning
STAT OF THE DAY
Today in 1776, Rhode Island became the 1st American colony to renounce allegiance to King George III.
