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Client Talking Points

US Dollar

A solid comeback this morning for the US Dollar right to my TREND line of $81.39 resistance. So will it hold? If it does, and Janet Yellen loses Bernanke’s (perceived) control of the bond market, this is going to get really gnarly. Fast. #StrongDollar + #RatesRising is what I loved for all of 2013. (Gold loathed it). That was until Bernanke opted for the epic no-taper blunder.

ASIA

Look at the divergence born out of a #StrongDollar move. Over in Japan, the Nikkei loved it. It was up +2.2%. Why? Because it loves Burning Yen vs USD. And Emerging Asian Markets like India (-1%) and Indonesia (-1.4%) didn’t like it at all. Don’t forget what a pervasively #StrongDollar got you in July – a currency crisis in some of these Emerging Market markets (and inflation).

MBS Bubble

2008 Oil Bubble... 2011 Gold and Foreign Currency Bubbles... 2012 Food Bubble... 2013 stock market bubble... Just how many bubbles can Ben Bernanke foment under his Fed watch? The next one to pop is the one no one can get out of...MBS. And that’s why this Andrew Huszar Wall Street Journal Op-Ed article is so timely. Finally! Someone explaining the truth of Too Big To Fail bond positions.

Asset Allocation

CASH 62% US EQUITIES 6%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
DAX

In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.

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.

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

At the $SPY high yesterday volume had almost vanished; breadth was bad too @KeithMcCullough

QUOTE OF THE DAY

Failure is not fatal, but failure to change might be. -John Wooden

STAT OF THE DAY

Obamacare has reached only about 3% of its enrollment target for 2014 in 12 U.S. states where new online health insurance marketplaces are mostly working smoothly, according to a new report. States with functioning exchanges have signed up 49,100 people compared with the 1.4 million people expected to be enrolled for 2014, according to Avalere Health. (Reuters)