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Client Talking Points

YEN

The Yen is burning another -0.5% vs. USD and this is one of the biggest reasons why Oil got smoked (Dollar Up), but an interesting level of resistance here at $116.51 – if that holds, Oil should bounce somewhere north of $73 – so just be aware of the short term capitulation in everything Energy (including Putin!).

KOSPI

The Kospi  is down another -0.9% to -3.2% year-to-date; this is another unintended (the Koreans would say the Japanese intended it) consequence of Yens burning . South Korean Wons get more expensive #CurrencyWar; funny that some used to call it Dr Kospi (as a leading indicator for global growth), until it went down…

RUSSELL 2000

The Russell 2000 tried her best @Hedgeye TREND resistance (1187) and failed (again). We can’t tell you how many people A) who missed shorting this in July now say B) the small cap “bottom is in” – but it’s a lot of people; so fade that as the Liquidity Trap that has been this index just made yet another lower-all-time-#Bubble high.

Asset Allocation

CASH 68% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
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). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.

TLT

We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).

XLP

The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road

TWEET OF THE DAY

Real Conversations: Crisis Coming? Stockman on ‘Likely Global Recession’... https://www.youtube.com/watch?v=3q1g5swAUrA&feature=youtu.be

@KeithMcCullough

QUOTE OF THE DAY

Dost thou love life? Then do not squander time, for that's the stuff life is made of.

-Benjamin Franklin

STAT OF THE DAY

Oil is 95% of Venezuelan exports (iron ore is a portion of the other 5%), and they are known as one of the highest-cost producers in OPEC.