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Client Talking Points

MARIO DRAGHI

The bull case for European Equities has successfully transitioned (for now) from growth accelerating to #GrowthSlowing + QE (consensus suggesting official QE announcement at the DEC 4th meeting); Spain’s 10yr breaking 2.0%.

UST 10YR

The Long Bond read last week’s trifecta of Japan/Europe/China stimulating for what it was (global #GrowthSlowing) and remains in crash mode at 2.33% (down -23% year-to-date). We still like the Long Bond vs. RUT short.

RUSSELL 2000

The Russell 2000 was flat for the 3rd straight week last week with pretty much everything equities going straight up; immediate-term risk range there is now 1153-1188 (with 1188 being intermediate-term TREND resistance).

Asset Allocation

CASH 65% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 5%

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

GOLD: -0.5% this am to $1195 with an immediate-term risk range of $1142-1212 $GLD

@KeithMcCullough

QUOTE OF THE DAY

In matters of style, swim with the current; in matters of principle, stand like a rock.

-Thomas Jefferson

STAT OF THE DAY

The Galaxy S5 sold 40% fewer units than projected, is said to have sold 12 million units in its first three months on sale which is roughly 4 million fewer than its predecessor. Sales were reportedly down over 50% in China (Wall Street Journal).