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Client Talking Points

#QUAD4

In our model, when both growth and inflation are slowing, globally, the Long Bond works and so do Consumer Staples (XLP) and Healthcare (XLV) stocks. With Energy (XLE) down -4% and SPX -0.7% last week, XLV and XLP were +2.3% and +1.6%, respectively – stay with this macro playbook (we like Industrials, XLI, short side too).

EUROPE

After dropping -5% and -6%, respectively last week, Italy and Spain are bouncing +0.5-0.9% this am – whatever Mario Draghi is trying to prove, he’s not proving it to the equity market. Russia leads equity losers again this morning -2.6%; Portugal and Norway -0.5-6% too; does he have enough in the central planning gun for JAN 22?

OIL

Maybe Draghi should just buy Oil and SPX futures (Wall St did last week, with both net LONG futures/options positions at 6 month highs – yes, that’s a contrarian indicator); WTI -2.3% this morning after a -8.4% week – just nasty #Quad4 Deflation.

Asset Allocation

CASH 53% US EQUITIES 7%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.

TLT

As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.

HOLX

Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road

TWEET OF THE DAY

$LULU guides up rev, 6-7% comp on constant $ basis, EPS +$0.06 on low end, $0.04 on the high end, Still one of our top picks #hedgeyebestidea

@HedgeyeRetail

QUOTE OF THE DAY

Who would want to use it anyway?

-President Rutherford B Hayes on the telephone, 1876

STAT OF THE DAY

The UST 10YR Yield was down -16 basis points on the week to -10% already for the year-to-date and Commodities (CRB Index) deflated another -1.2% on the week to start 2015 -1.9% year-to-date.