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 France ETF (EWQ)
- iShares MSCI European Monetary Union ETF (EZU)
- SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
QUANT SIGNALS & RESEARCH CONTEXT
- New Lows for FX: Our Tactical Asset Class Rotation Model (TACRM) is generating a lowly 2% Passive Trend Follower Asset Allocation for FX as a primary asset class, which represents a delta of -45% and -81% from its trailing 3M and 12M averages, respectively. Furthermore, that 2% reading is only in the 1st percentile of readings since the start of 2008. Only two of the 14 ETFs comprising the FX asset class in TACRM have positive Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) readings; a whopping 57% of them have VAMDMI readings below -1x (i.e. exhibiting a clear trend of negative volume-weighted price momentum on a multi-duration basis). Our #Quad4 theme continues to remain appropriately on the right side of this move in Foreign Exchange.
- #StrongDollar Likely to Continue: Obviously the BoJ has gone all-in with money-printing and our proprietary G3 Monetary Policy Model continues to portend further easing out of the ECB as well. To the extent they are able to act as aggressively as what is being demanded by the markets remains to be seen, however. All told, the USD is clearly broadly overbought, but until our quantitative signals suggest otherwise, we think it pays to be short of foreign currency exposure. Don’t get caught myopically naval gazing at the U.S. economy; RoW monetary policy is as big a factor in determining FX rates as the Fed!
***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.
Early Look: Bad #Deflation (11/14)
Oil: Supply, Supply, Supply (11/13)
#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.
Early Look: Battlefield’s Vortex (11/11)
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.