• Navigate This Market Turbulence: All Hedgeye Research → 3 Months 66% Off

    Preserve. Protect. Grow. Former hedge fund manager and CEO Keith McCullough has successfully navigated the Dot Com Bust, Great Financial Crisis and Crash of 2020. Get 66% off the smartest investing insights money can buy.

Client Talking Points

USD

The Dollar is up small (+0.1% at 95.54 USD Index) ahead of Janet’s testimony in front of the House Financial Services committee (a brilliant bunch indeed) and we wouldn’t be surprised if she tries to talk hawkish amidst acting dovish; don’t forget that she’s a Democrat who wants to paint the economy as “good”, even though GDP will be reported at 1% tomorrow.

UST 10YR

Textbook sell-off to the low-end of the @Hedgeye 1.54-1.65% risk range yesterday, and the bounce back up to 1.58% - on any “omg the Fed is hawkish” move higher (in rates) from here today, I’m a big buyer of long-term Treasuries and Gold (i.e. at 1.65% or higher); buy bonds at the top-end of the rates range; sell some on selloffs to the low-end of the range, rinse & repeat.

Month End

Thank goodness SEP ends this week and the month looks a lot more like 2016 YTD has – i.e. Long-term Bonds beating US Equity (SPY) Beta, Utilities crushing the Financials; Gold chugging along; Oil chopping people up – stay long Low Beta, Safe Yield.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/27/16 66% 2% 3% 7% 19% 3%
9/28/16 65% 2% 3% 8% 18% 4%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/27/16 66% 6% 9% 21% 58% 9%
9/28/16 65% 6% 9% 24% 55% 12%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
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

See update above.

TLT

See update above.

Three for the Road

TWEET OF THE DAY

An Update on Global Bond Yields * US 10yr 1.57% * Germany = -0.13% * Japan = -0.10% * Swiss = -0.59% pic.twitter.com/1nJFzyVZQO

@Hedgeye

QUOTE OF THE DAY

“Without ambition one starts nothing.  Without work one finished nothing.  The prize will not be sent to you.  You have to win it.”

-Ralph Waldo Emerson

STAT OF THE DAY

Nolan Ryan gave up 321 HR's during his MLB career.