The Economic Data calendar for the week of the 31st of March through the 4th of April is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.




Takeaway: Our bullish bias on the BRL is working and, as anticipated, so are Brazilian equities & EM assets broadly. We see further upside from here.


On Wednesday, we published our updated thoughts on EM capital and currency markets strategy (CLICK HERE to review). That piece was long and thorough, so in the interest of not taking up too much of your time on a Friday afternoon, we’ll keep this note brief...


The key takeaway is simple:


We are broadly bullish on EM assets with respect to the intermediate-term TREND duration. On a forward-looking basis, we no longer see the same globally interconnected headwinds that caused us to get so pervasively negative on emerging markets roughly 1Y ago when we introduced the first of many subsequent presentations supporting our #EmergingOutflows theme.


Indeed, it would seem that the relief rally we started to call for on our FEB 27 conference call on Brazil has materialized and we anticipate further upside. Moreover, the nature of the rally (i.e. being led by the countries generally perceived as the most risky) is very much in line with our expectations.


  • EM assets are up +1.9% on average at the asset class level since then… that compares to a -0.3% decline for the US equity market over that same duration.
  • EM country-level ETFs are up +1.6% on average… India (EPI) at +11.9%, Turkey (TUR) at +10.6%, Indonesia (EIDO) at +7.6% and Brazil (EWZ) at +7.2% account for the four positive divergences (i.e. > +1 sigma vs. the mean) in the sample.



Looking into Brazil specifically, yesterday we received the first of what is likely to be several supportive catalysts with respect to our bullish bias. Specifically, a CNI-Ibope poll showed President Rousseff’s approval rating  ticked down to a record-low of 51%; that marks the first sequential decline since JUL ’13, when millions of Brazilians took to the streets across the country in protest over inflation and the mismanagement of public funds.


The results of the poll are supportive of our belief that: A) the threat to Dilma Rousseff’s presidency is real come OCT 5th; and B) at the bare minimum, popular discontent will amplify the perceived failures of her economic policies during the campaign season, which opens the door for her Worker’s Party (PT) to cede share in the Brazilian legislature. One-third of Senate seats are up for grabs in the upcoming general election and as are all 513 seats in the Chamber of Deputies. To the extent opposition parties form a stronger mandate we could see a gridlock-induced cap on Rousseff and Finance Minister Guido Mantega’s expansionary fiscal policies – assuming they even return to power in 2015.


In conjunction with the news release yesterday, the BRL jumped nearly a full +2% vs. the USD; Brazil’s benchmark Bovespa Index ripped +3.5% and was led by state-run companies like Electrobras (+9.8%) and Petrobras (+8.1%). We continue to think contrarian equity investors will find PBR as attractive on the long side as we do amid the prospect for fuel pricing reform and a likely acceleration in production growth. Refer to our FEB 27 slide deck for more details.


Lastly, we just wanted to thank Standard & Poor’s for Monday’s downgrade of Brazilian sovereign debt for helping cement what we clearly think is: A) a bottoming process in the prices of Brazilian financial assets; and B) a topping process in pervasively bearish sentiment towards Brazil among international capital allocators.



If you are looking for some long ideas in the EM space, then you’ve come to the right place. We have a number of high-conviction ideas that: A) have been working; and B) we expect will continue working as additional catalysts materialize.


  • Long India: The EPI ETF is up +12.4% since we outlined our thesis on OCT 29; that’s good for the third best performance across the basket of EM country-level ETFs we track.
  • Long “New China” (CQQQ + CHIQ)/Short “Old China” (CHIX + CHXX): On an equal-weighted basis, this strategy is up +18.4% since we outlined our thesis on DEC 4.
  • Long Indonesia: The EIDO ETF is up +19% since we outlined our thesis on JAN 30; that is the best-performing EM country-level ETF over that duration.






We need to do more work on the long side of Turkey (TUR), lol… the mean reversion opportunity afforded by a -33.9% YoY decline is substantial indeed!


In all seriousness, please shoot us an email if you want to see our work on any of these plays and we’ll be happy to get the relevant materials over to you and/or to set up a call.


Have a great weekend,




Darius Dale

Associate: Macro Team

Stock Report: Legg Mason Inc (LM)

Stock Report: Legg Mason Inc (LM) - HE LM T 3 28 14


A recent speaker’s series call with a leading pension fund consultant relayed that “at funded” U.S. corporate pensions are now de-risking from equities and are shifting asset allocation into fixed income and alternatives. 


The biggest exposure to institutional fixed income of the public asset managers is at Legg Mason with 71% of the company’s business within institutional mandates with the majority of that in bonds.


Separately we estimate that as the Fed starts to taper and come off of the bond curve that rates will actually decline and not increase because a reduction in quantitative easing will slow growth. This will also benefit leading bond managers.




INTERMEDIATE TERM (TREND) (the next 3 months or more)

With 11% short interest (the second highest in the group) and the lowest ranked stock of the big 6 public asset managers (with only 3 buys in coverage by 18 analysts) even just marginally improved trends should send the stock to the lows 50 per share range.



LONG-TERM (TAIL) (the next 3 years or less)

Within this pension de-risking theme we estimate that up to $500 billion should come into leading fixed income managers and up to $1 trillion should be redeemed within core S&P 500 institutional equity mandates. If this theme materializes Legg should see a disproportionate amount of inflow versus other managers which would lead to substantial earnings power above Street estimates.


We think the company can earn $3.50 next year, 10% above Street estimates, which at an industry multiple would translate into a fair value of $60 for the stock. 




Stock Report: Legg Mason Inc (LM) - HE LM C 3 28 14

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Stock Report: Hologic, Inc. (HOLX)

Stock Report: Hologic, Inc. (HOLX) - HE HOLX T 3 28 14


We think Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In out view, Hologic and it's new management are set to show solid growth over the next several years.


We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  


The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time.


In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading.



INTERMEDIATE TERM (TREND) (the next 3 months or more)

Carl Icahn has recently declared his interest in Hologic.  We are not quite sure what his plans are to improve the company. Speculation has been somewhat dampened by public comments made by management.  At a minimum, Icahn's involvement provides some downside protection for the shares.



LONG-TERM (TAIL) (the next 3 years or less)

If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.  When we measured the increase in products and services these typically younger uninsured individuals will consume when they get insurance, Hologic's products are at or near the top of the list.  As the ACA matures over the coming years, we'd expect a tailwind for HOLX.




Stock Report: Hologic, Inc. (HOLX) - HE HOLX C 3 28 14

Nike is Betting Big on Johnny Manziel | $NKE

Takeaway: We don't like the stock here. We like this development.

Editor's Note: This is a complimentary research excerpt from Retail Sector Head Brian McGough. For more information on our services, click here.


Nike is Betting Big on Johnny Manziel | $NKE - 1b263215f5c9551a0593fa93de01ad79 crop north


Nike Showcases Johnny Manziel Pro Day Collection


• "Nike, which recently signed Johnny Manziel to an endorsement contract, is wasting no time cashing in. At Texas A&M's pro day on Thursday, Manziel elected to wear Nike full pads and helmet, a move that surprised scouts and the media since most players do not suit up with a helmet during these types of workouts. Nike tweeted out a link to buy all the items from the Manziel 'Pro Day Collection.'”


Nike is Betting Big on Johnny Manziel | $NKE - chart1 3 28

Takeaway from Hedgeye’s Brian McGough:

Let's be clear. We still think that Texas A&M quarterback Johnny Manziel is a colossal, gigantic, enormous, huge blow-up risk. 


But we give Nike a lot of credit on how they're handling this one.

Their old method was:

1)      Endorse big athletes;

2)      Stick them in ads; and

3)      Hope that it trickles down to the mainstream product.


In this case, though, Nike has a full array of products associated with Manziel for Pro Day –far from when he even will even see a snap in the NFL.  This marks a fundamental change for how Nike is handling endorsements.


We still don't like the stock here…but we do like this development.

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