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
- iShares Russell 2000 ETF (IWM)
- SPDR S&P Regional Banking ETF (KRE)
- 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
- Global Growth Slowdown Continues: With Japan in a deep recession and both the ECB (Eurozone) and PBoC (China) confirming what the recent economic data has been suggesting (i.e. marked slowing), it’s a trivial matter to proclaim that global growth is slowing. What is less trivial to anyone who anchors on [outrageously incongruent] Consensus Macro and/or regional Fed surveys is that growth is slowing fairly markedly in the U.S. as well. In the spirit of not cherry-picking #GrowthSlowing data, we thought we’d take this opportunity to highlight a broad swath of U.S. economic data below. As it is plain to see, the vast majority of the key economic indicators are slowing quite ardently.
- In Equities, We Still Like Defensives > Cyclicals: In the spirit of our #Quad4 theme – which is continues to be confirmed by both the data and the market [leadership] – we continue to favor the slow-growth, yield-chasing sectors and style factors that have worked for us all year in conjunction with our call for lower long-term interest rates. Such defensive equity exposures continue to sit atop the YTD performance table, trouncing the cyclical exposure which continues to be favored by the Consensus Macro community by a wide margin. One could drive the proverbial “truck” through the 1835bps spread between the YTD performance of Healthcare (XLV) and Consumer Discretionary (XLY)!
***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.
#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.