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Client Talking Points

USD

The USD is signaling immediate-term TRADE overbought vs. both the Euro and Yen this morning, so watch-out if this starts to reverse (this is where the USD Index topped in 2013 as well). Inverse correlations between the USD and big stuff like Oil and Gold are running -0.8-0.9 on 60-90 day correlation durations.

NIKKEI

One of the biggest benefactors of Draghi going for the devaluation drugs in May has been Japanese stocks – they love the smell of Burning Yen. The Nikkei’s round trip recovery came on worsening economic data, but it is +17% since May 19th as the Dollar Yen trade got torched.

GOLD

2014 round-trip for both the CRB Index and Gold on this massive FX move (biggest since 1997, which by the way isn’t a riskless reference point in macro history), and Gold’s exhaustion level on the downside is 1203-1211 inasmuch as the USD Index is exhausted on the upside in the 84.92-85.67 range.

Asset Allocation

CASH 48% US EQUITIES 4%
INTL EQUITIES 12% COMMODITIES 4%
FIXED INCOME 28% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). Now that we have our first set of late-cycle economic indicators slowing in rate of change terms (ADP numbers and the NFP number), it's time to really think through the upcoming moves of this bond market. We are doubling down on our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.

TLT

Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

RH

Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.  

Three for the Road

TWEET OF THE DAY

FX: Draghi continues to burn the Euro, down to $1.27 vs USD, signaling immediate-term TRADE oversold

@KeithMcCullough

QUOTE OF THE DAY

Stop walking through the motions of a conditioned routine and start consciously taking action on your visualized intent.

-Steve Maraboli

STAT OF THE DAY

As part of its holiday strategy, Toys"R"Us plans to hire 45,000 seasonal employees at its stores and distribution centers nationwide, more than doubling the company's workforce.