Underneath the Hood

Client Talking Points

EURO

The European Central Bank (ECB) bureaucrats have to be miffed. In spite of the rate cut, and French and Italian jawboning, the EURO just won’t go down. Why? It's primarily because the US DOLLAR won’t go up! Meanwhile, Janet Yellen is the more incremental dove here. The ECB’s balance sheet doesn’t look like the Fed.

RUSSIA

"Putin Power" (or lack thereof) is turning into an interesting story yet again as the price of Oil makes a series of lower-highs and Ukrainians go after the pro-Russia central planning thing. The Russian stock market leads the losers this morning down -0.8%. Old Putin's market is down over -3% year-to-date. Live by oil, die by oil...

UST 10YR

The 10-year yield is down 4 basis points to 2.72% in the last 24 hours. Gold goes up $20/ounce on that. Getting #RatesRising right had you get Gold (down) right. The question now is does Gold stabilize as yields make lower-highs?More to be revealed.

Asset Allocation

CASH 44% US EQUITIES 8%
INTL EQUITIES 8% COMMODITIES 8%
FIXED INCOME 8% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

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

I have never seen so many market geniuses be bearish on a market they can't time @KeithMcCullough

QUOTE OF THE DAY

"To think is easy. To act is hard. But the hardest thing in the world is to act in accordance with your thinking." - Johann von Goethe

STAT OF THE DAY

About 1 in 6 unemployed workers are addicted to alcohol or drugs -- almost twice the rate for full-time workers, according to the government's National Survey on Drug Use and Health. The survey shows that 17% of unemployed workers had a substance abuse disorder last year, whereas 9% of full-time workers did so. The numbers are self-reported, and therefore, could be even higher in reality.


Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

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McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

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Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

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Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

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Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

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6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

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Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

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Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

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A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

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Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

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Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

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An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

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