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Client Talking Points

KOSPI

Whoever is long South Korea’s stock market is not a happy camper this morning. The KOSPI is down hard for the first two days of the year (-3.3%). It is now bearish on both Hedgeye TRADE and TREND durations. Global Inflation Expectations Rising hurt real-growth assumptions.

EUROPE

Across the pond, the #StrongPound and #StrongEuro continue to be the economic glue holding together rising purchasing power and confidence across the continent. Both the UK's FTSE and Germany's DAX held TRADE and TREND lines of support yesterday. Meanwhile, UK Construction PMI came in at 62.1 for December. As you may recall, #EuroBulls was a Q4 Macro Theme here at Hedgeye.

GOLD

After crashing throughout 2013, Gold, Yen, VIX (volatility) were all up yesterday. Yes, I will be fading that counter TREND move (shorting Gold and buying US and European equity beta) on that. Sorry, but Gold is nowhere near confirming anything at all except a dead cat bounce. Incidentally, the upside in the 10-year Treasury yield is 3.07%.

Asset Allocation

CASH 40% US EQUITIES 12%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 0% INTL CURRENCIES 30%

Top Long Ideas

Company Ticker Sector Duration
GHL

Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL.  So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.

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.

Three for the Road

TWEET OF THE DAY

TREASURIES: 2.98% 10yr yield holds yet another higher-low; bullish #RatesRising, bearish Gold @KeithMcCullough

QUOTE OF THE DAY

"Go confidently in the direction of your dreams. Live the life you have imagined." -Henry David Thoreau

STAT OF THE DAY

Pimco had record redemptions last year in the $244 billion Total Return Fund, which trailed 64% of peers and fell 1.9% in 2013 for the biggest loss since 1994 as the S&P 500 surged 30%, prompting investors to flee traditional bond funds.(Bloomberg)