THE HEDGEYE MACRO PLAYBOOK

Takeaway: Today we highlight one of our processes that sets us apart from our competition (HINT: we don't do surveys; we actually crunch the numbers).

INVESTMENT CONCLUSIONS

Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. iShares Russell 2000 ETF (IWM)
  2. SPDR S&P Regional Banking ETF (KRE)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

 

QUANT SIGNALS & RESEARCH CONTEXT

In Monday’s edition of the Hedgeye Macro Playbook, we highlighted how recent trends across the preponderance of high-frequency economic indicators were supportive of our view that both growth and inflation are slowing domestically. Along those lines, the preponderance of this week’s economic data was more of the same in that regard – i.e. slowing at the margins. Here are those key releases (in order of release date/time):

 

  • Chicago Fed National Activity Index: 0.14 in OCT, down from 0.29 in SEP, which was revised down from an initial reading of 0.47
  • Markit Services PMI: 56.3 in NOV, down from 57.1 in OCT
  • Markit Composite PMI: 56.1 in NOV, down from 57.2 in OCT
  • Real GDP: revised up +10bps to +2.4% YoY in 3Q , which was still down from +2.6% YoY in 2Q
  • Case-Shiller Home Price Index: +4.9% YoY in SEP, down from +5.6% YoY in AUG
  • FHFA House Price Index: +4.2% YoY in SEP, down from +4.8% YoY in AUG
  • Conference Board Consumer Confidence Index: 88.7 in NOV, down from a downwardly-revised 94.1 in OCT
  • MBA Mortgage Purchase Applications: -4.3% WoW, down from +4.9% WoW in the prior week
  • Initial Jobless Claims: +313k WoW, up from an upwardly revised +292k WoW in the prior week; on a 4-week rolling NSA basis, the YoY rate of improvement (which implies the 1st derivative is negative) decelerated for the 5th consecutive week to -12.7%
  • Core Durable Goods (ex-Defense & ex-Aircraft): +5.8% YoY in OCT, down from 6.8% YoY in SEP
  • Core Capital Goods (ex-Defense & ex-Aircraft): +8.2% YoY in OCT, up slightly from +8.1% YoY in SEP
  • Real Personal Consumption Expenditures: +2.2% YoY in OCT, down slightly from +2.3% YoY in SEP
  • University of Michigan Consumer Confidence Index: 88.8 in NOV, down from a preliminary NOV reading of 89.4
  • Pending Home Sales: +2.2% YoY in OCT, down from an upwardly revised +3.4% YoY in SEP
  • New Home Sales: +1.8% YoY in OCT, down from +14% YoY in SEP

 

Got #GrowthSlowing?

 

We know why most investors like surveys such as the [regional] Philly Fed Business Outlook or, worse, an “independent” research provider’s proprietary (READ: fabricated) assessment – they’re almost always bullish and they don’t require any work to interpret (i.e. no rate-of-change calculus, trend amalgamation, etc.)!

 

If, however, we opted to publish a survey like our [perceived] competitors, ours would probably tell you to remain long of our slow-growth yield-chasing trade – the outperformance of which has Consensus Macro attempting to play catch-up.

 

***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: Macro Tryptophan (11/28)

 

#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.

 

QE Conundrums – Draghi’s Misguided Intervention? (11/26)

 

#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.

 

#Bubbles: S&P500 Levels, Refreshed (11/18)

 

Best of luck out there,

 

DD

 

Darius Dale

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.


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