CLIENT TALKING POINTS

CHINA

China evidently has not “bottomed” – neither the made-up Chinese data nor the stock market is healthy right now. The Shanghai Composite got hammered for a -2.8% loss overnight and remains in #crash mode -44% since July of 2015 (Italy -26% and Nasdaq -10% since then).

UST 10YR

Oh boy has the Bond Market been nailing it since both #TheCycle (U.S. GDP) and stocks peaked in July 2015 – going into the jobs report 1.74% smells a slow-down as we test new lows in the 10s/2s Yield Spread at 101 basis points.

GOLD

Gold alongside the Long Bond (TLT) and Utes (XLU), remains one of our Top 3 Macro Long Ideas. Gold is up +0.3% into the jobs report with Copper down as our boy Trump trashes the Dollar – he says he wants a weak one (long real estate, in Dollars) – so does Janet! America has never been “great” with a Weak Dollar Policy.

*Tune into The Macro Show with Hedgeye CEO Keith McCullough 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 58% US EQUITIES 4%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 28% INTL CURRENCIES 4%

THREE FOR THE ROAD

TWEET OF THE DAY

**NEW VIDEO

An Animated History Of U.S. #GrowthSlowing https://app.hedgeye.com/insights/50765-an-animated-history-of-u-s-growthslowing… via @KeithMcCullough #GDP #Economy

@Hedgeye

QUOTE OF THE DAY

Everyone is a genius; you just can’t judge a fish by its ability to climb a tree.

Einstein       

STAT OF THE DAY

The NHL’s Arizona Coyotes named John Chayka the team’s General Manager, making the 26-year-old the youngest GM in the league.