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Client Talking Points

VIX

After making a series of higher-lows since August, front month VIX (volatility) broke out above our Hedgeye TREND resistance of 14.91 yesterday. Fed confusion is going to breed contempt. This equity market is as complacently positioned as I have seen it in six years. Yesterday’s II Bull/Bear survey hit a fresh year-to-date high of +4390 basis points to the Bull side!

DAX

Germany broke its immediate-term TRADE line of 9,148 support this week. I have no idea why (other than the machines chase price momentum). So, I’m going to stay out of the way of European Equities for the timing being. No one goes broke with no position.

GOLD

Gold prices are whipping around with rates – taper on, taper off. The UST 10-year yield up 4 basis points in 24 hours and Gold down on that. It makes sense. We sold our trading long in GLD on Tuesday at $122.12. We would like to buy it back closer to the low-end of Gold’s current 1216-1260 immediate-term risk range.

Asset Allocation

CASH 58% US EQUITIES 6%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 8% INTL CURRENCIES 22%

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

Equity volatility starting to look primed to breakout into 2014 #VIX @KeithMcCullough

QUOTE OF THE DAY

"Success usually comes to those who are too busy to be looking for it." - Henry David Thoreau

STAT OF THE DAY

Foreigners are boosting holdings of Japanese stocks by the most on record. Buyers outside Japan pumped 12.9 trillion yen ($125 billion) into the nation’s stocks this year through November, Tokyo Stock Exchange data show, as the Topix index climbed 44% to lead developed markets.(Bloomberg)