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Client Talking Points

US

The Trend slope of improvement in U.S. growth, credit and confidence are all positive. Meanwhile, both Treasury Yields and the US Dollar remain Bullish from a price perspective. #RatesRising has been reflecting that positive fundamental reality as have market prices as pro-growth exposure continues to get marked higher (new year-to-date highs yesterday for the QQQ’s and another new all-time high for the Russell 2000). Meanwhile the underperformance spread for slow growth, yield chasing assets (Utilities, MLP’s) continues to expand.   

COMMODITIES

You may recall that #CommodityDeflation was our Macro call in Q1 2012. Well, it continues. Gold remains an unmitigated train wreck. It's still crashing with $1304 the last print. Gold bugs are down -22.4% year-to-date and down -32% from the 2011 Bernanke Bubble high. Hedgeye risk range on gold is $1288-1349. We're still keeping a close eye on Brent oil which obviously has important economic implications. Brent range is $107.58-111.43. If there's one thing Obama can do for this economy it's tell Janet Yellen to bring back #StrongDollar which will lead to Down Oil.

Asset Allocation

CASH 30% US EQUITIES 24%
INTL EQUITIES 22% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Yield Spread (10yr minus 2yr) plenty wide at +246bps - Financials $XLF +25.2% YTD for good reason @KeithMcCullough

QUOTE OF THE DAY

Always forgive your enemies - nothing annoys them so much.

- Oscar Wilde

STAT OF THE DAY

The median wage of workers age 25-34 with a bachelor's degree is $44,970. The median wage of workers age 25-34 with a high school diploma is $29,950. The median student loan balance is $12,800.