THE HEDGEYE MACRO PLAYBOOK

Takeaway: Our Macro Playbook is a daily 1-page summary of our investment themes, core ETF recommendations and proprietary quantitative market context.

INVESTMENT CONCLUSIONS

Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

QUANT SIGNALS & RESEARCH CONTEXT

  • Great Spot to Buy Bonds: Nearing the top end of our 2.21% to 2.38% risk range, this most recent lower-high in the 10Y U.S. Treasury bond yield is signaling to us that this is a great spot to increase exposure to fixed income – in Treasury bond (TLT and EDV) and Muni (MUB) terms. Buy side consensus remains bearish on Treasuries to the tune of a -18.4k net short position in the futures and options markets, but their misguided focus on valuation and/or expectation for a sustained pickup in U.S. GDP growth leaves us anticipating mass capitulation over the intermediate term.  Remember, we want you to continue to avoid the bulk international fixed income exposures like the bubonic plague. Specifically, 18 of the 30 ETFs comprising the Fixed Income & Yield Chasing primary asset class in our Tactical Asset Class Rotation Model (TACRM) have a negative VAMDMI readings. Furthermore, 27% of the total have VAMDMI readings below -1x, which indicates a clear trend of negative volume-weighted average price momentum across multiple durations. PIMCO having to blow out of Bill Gross’ PIIGS paper or the #StrongDollar impact on EM sovereign and corporate debt remain key overhangs.
  • Short Energy on the Bounce(s): Yesterday, we added the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) to our highest-conviction short ideas list up top. Specifically, our fundamental analysis of the outlook for marginal supply (i.e. stable), marginal demand (i.e. global growth slowing) and momentum (i.e. bearish TRADE, TREND and TAIL) portends further downside. We see a [soft] floor of $65/bbl. [and falling] over the intermediate term – especially in the context of the BoJ adopting a more aggressive mindset in response to the global currency war. A weaker yen is dollar-bullish, which is bearish for the price of crude oil; the correlation between the USD and Brent spot prices since the May 6th YTD low in the DXY is -0.90.

***CLICK HERE to download the full TACRM presentation.***

TRACKING OUR ACTIVE MACRO THEMES

#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.

Oil: More Downside? (11/5)

 

#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.

Top Ten Reasons to Stay Short the Euro (11/5)

#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.

Early Look: Write It Down (11/4)

Best of luck out there,

DD

Darius Dale

Associate: Macro Team

About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.