Long Ideas/Overweight Recommendations
- iShares National AMT-Free Muni Bond ETF (MUB)
- iShares 20+ Year Treasury Bond ETF (TLT)
- Vanguard Extended Duration Treasury ETF (EDV)
- Health Care Select Sector SPDR Fund (XLV)
- Consumer Staples Select Sector SPDR Fund (XLP)
Short Ideas/Underweight Recommendations
- SPDR S&P Regional Banking ETF (KRE)
- iShares Russell 2000 ETF (IWM)
- iShares MSCI European Monetary Union ETF (EZU)
- iShares MSCI France ETF (EWQ)
- SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
QUANT SIGNALS & RESEARCH CONTEXT
- Short More Oil Exposure: With the CRB Commodities Index (19 commodities across energy, aggs and metals) down a full -1% yesterday, our quant models are now registering lower-lows of support over the immediate-to-intermediate term. For crude oil specifically, our immediate-term risk range for WTI is now $75.69-79.16. In the context of how markets actually function, we find Consensus Macro gobbledygook about Europe and Japan “exporting deflation” unsubstantiated at best. To wrap some math around their storytelling, the trailing 6M correlation between the U.S. Dollar Index and WTI Crude Oil is -0.90. What the market is very clearly telling you is that as bullish as you are on the spoos due to ECB/BoJ money printing is as bearish as you should be on the energy complex and the earnings (SPX multiple?) and CapEx (GDP, job growth) associated with it. Our Tactical Asset Class Rotation Model (TACRM) is telling a similar tale, continuing to register a “DECREASE Exposure” signal for the broader asset class. Since the start of 2008, the CRB Index has registered a cumulative -41.9% 1-week forward return during such commensurate signal periods. As such, we continue to anticipate more downside for “oily” equity exposure over the intermediate term. The phase transition in energy has only just begun...
***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.
#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.
Best of luck out there,
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.