CLIENT TALKING POINTS
USD
One of the main reasons for the oversold SPY signal was the super-short term overbought signal in USD (2 USD up days rocked reflation beta, but on a bad jobs report tomorrow, USD can easily retrace to 16 month lows). The 90-day inverse correlation between the SPY and USD is -0.62, so it’s not the layup that buying oil/energy stocks has been (higher correlation), but it’s there.
OIL
Oil had a big bounce up +3.3% on Dollar Down move as WTI holds the low-end of our immediate-term $42.34-46.63 risk range and that’s all it’s signaling to us here – short-term range bound with long-term TAIL risk in that $46-47 range.
SECTORS
Our favorite sector had another good day yesterday (Utilities +1.2% in a down tape to +14.0% year-to-date), and we added Energy (XLE) on the long side (for a trade) on that SPY/XLE immediate term oversold signal; on a bad jobs print (Dollar Down, Rates Down). We think both positions can work; on a “good” print, we’ll be wrong - still like Financials and Tech on the short side.
*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 | 58% | US EQUITIES | 4% | |
| INTL EQUITIES | 0% | COMMODITIES | 6% | |
| FIXED INCOME | 28% | INTL CURRENCIES | 4% |
THREE FOR THE ROAD
TWEET OF THE DAY
Explaining How We've Been So Accurate on GDP https://app.hedgeye.com/insights/50717-mccullough-why-our-gdp-forecasts-are-so-accurate…
@KeithMcCullough
QUOTE OF THE DAY
Kites rise highest against the wind.
Winston Churchill
STAT OF THE DAY
A report from Oceans Beyond Piracy group shows a total of 32 seafarers had been kidnapped so far this year compared with 15 in 2015.
