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TAKING RISKS

CLIENT TALKING POINTS

TAKING RISKS

When Felix Baumgartner dove from the edge of space yesterday for the Red Bull Stratos event, he certainly knew the risks involved and how to manage them accordingly. Risk management is a process that can be applied outside of financial markets and Baumgartner’s endeavor is indicative of that. 

Looking at our signals for the various asset classes we cover this morning, we’ll continue to trade things like gold in the $1 range and the S&P 500 between 1. Staying within your parameters is the key to success - be it the market or jumping out of a balloon 24 miles high in the sky.

GETTING IT RIGHT

As we’ve said before: get the US dollar right and you’ll get a lot of other things right. That is the case early this morning as the US dollar made a move to the upside, taking commodity prices down with it. Oil, gold and the euro have all fallen materially and should the dollar have some more chutzpah in it to travel higher, expect more downside for commodities. After all, some commodities took a beating last week with copper down -2.2% and gold down -1.4%. Remember the Bernanke Correlation. The Fed is busy devaluing the dollar and driving up commodity prices. When the Fed is out of bullets and pondering what to do next and if Mitt Romney is elected President, there's a chance we could actually get back to strengthening our currency on a long-term basis.

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ASSET ALLOCATION

Cash:                Flat

U.S. Equities:   DOWN

Int'l Equities:   Flat   

Commodities: Flat

Fixed Income:  UP

Int'l Currencies: Flat  

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TOP LONG IDEAS

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

HCA HOLDINGS (HCA)

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

  • TRADE:  NEUTRAL
  • TREND:  LONG
  • TAIL:      LONG

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THREE FOR THE ROAD

TWEET OF THE DAY

“What have we learned? Deadly beast? $222 trillion notional derivatives now held by FDIC insured US banks vs $201 trillion when Lehman failed” -@Convertbond

QUOTE OF THE DAY

“Silent gratitude isn't very much use to anyone.” -Gertrude Stein

STAT OF THE DAY

128,000 feet above earth. The distance Felix Baumgartner jumped from his capsule setting new world records in the Red Bull Stratos event.