Japan, Commodities and Financials

Client Talking Points

JAPAN

In other news, the Yen had a surprise move above my immediate-term resistance line of $118.48 vs. USD, so that delivered a -1.7% down day for the Nikkei (which is down -6.4% now since its centrally planned gap higher on DEC 8th); the FX war gets more interesting now – Euro is going all in devaluation, and Fed needs to push out the USD dots.

COMMODITIES

CRB Index had another fresh new low of 220 yesterday (-30% crash since June) which is pile driving Dr. Copper down another -6% this morning to $2.48 (Copper down 19% and 25% since October and June, respectively); no idea how levered credit to inflation expectations assets works from here – will let bulls figure that out.

FINANCIALS

No matter what the European planners do, JPM/WFC/BAC still have to report reality in NIM terms (Yield Spreads at 12 month lows this morning) and the Financials (XLF) are already -3.6% year-to-date signaling bearish TREND in my model. Will that hold? We’ll see. But we do not like late-cycle Industrials (XLI) or Regional Banks (KRE).

Asset Allocation

CASH 54% US EQUITIES 6%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 30% 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

Hedgeye's Morning Macro Call *LIVE* with @KeithMcCullough this morning at 8:30am.  Gratis - humpday special >> https://www.youtube.com/watch?v=Y53fx9VOIMg

@HedgeyeUSA

QUOTE OF THE DAY

You cannot push any one up a ladder unless he be willing to climb a little himself.

-Andrew Carnegie

STAT OF THE DAY

Chipotle Mexican Grill Inc. suspended sales of pork at about 1/3 of its more than 1,700 restaurants after finding an important supplier didn’t comply with its animal-welfare standards, a spokesman said Tuesday.