CLIENT TALKING POINTS

Corporate Credit

Looking at a global default's tally from S&P, there were 5 defaults last week, brings the global tally to 127 2016YTD which is +61% Y/Y. The sustained weakness in the energy patch isn't only hurting energy companies - Investors who sank money into a rebound are also under water. A very active PE fund in Texas is now asking investors to fork over hundreds of millions of dollars to bolster the troubled funds or risk losing the billions they have already invested.

#EuropeSlowing

Germany's IFO Business survey took a dramatic leg higher in September (Business Expectations rose to 104.5 vs 100.1 prior). Despite the one-month survey data point, we're not fooled that conditions have not improved across the region. With growth slowing and inflation stalled as Brexit looms in the background, we're fading any call that economic conditions are improving.

Low Beta

Down Rates, Down Dollar (bad = good) continued to support asset price inflation post the Fed meeting last week. Under the hood, Low-Beta Stocks were up +2.3% on the week to +11.8% YTD while High-Beta Stocks were up +0.8% to +6.2% YTD. In other words, GrowthSlowing allocations continue to outperform on an absolute, relative and risk-adjusted basis – a dynamic we think persists through the balance of the year amidst heightened volatility and an impending transition to bad (macro data) = bad (for equity prices).

TOP LONG IDEAS

GLD

GLD

We named the current monetary policy committee a group of “dovish hawks” in a research note after Wednesday’s FOMC statement where the Fed tried to convince the market that the case for a December rate hike had strengthened.

“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”

However, a look under the hood at the committee’s “summary economic projections” provides incremental dovish color (all of which are good for slow-growth allocations and why our macro long positions in Investing Ideas had positive performance w/w).

  • The Fed’s dot plot was taken down at all durations into the future
  • 2016: revised to +0.625% from 0.875%
  • 2017: 1.125% from 1.625%
  • 2018: 1.875% from 2.875%
  • The median forecast for the Fed Funds Rate in the “long run” was revised down to 2.875% from 3% prior
  • 2016 GDP forecast: revised to +1.7%-1.9% from 1.9%-2.0% prior
  • 2016 PCE Price Index: revised to +1.2-1.4% from +1.3-1.7% prior

So growth continues to slow, and from our analysis, a significant amount of risk is on the table for investors who have chased reflationary asset prices in 2016. 

VYM

VYM

See update above.

TLT

TLT

See update above.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/25/16 62% 2% 3% 6% 25% 2%
9/26/16 65% 2% 3% 6% 22% 2%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/25/16 62% 6% 9% 18% 76% 6%
9/26/16 65% 6% 9% 18% 67% 6%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

THREE FOR THE ROAD

TWEET OF THE DAY

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@Hedgeye

QUOTE OF THE DAY

“The most rewarding things you do in life are often the ones that look like they cannot be done.”

–Arnold Palmer 

STAT OF THE DAY

Ryan Fitzpatrick threw 6 INT's yesterday.  They lost to the Chiefs 24-3.