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Client Talking Points

UST 10YR

Coming into the week there was a -250,163 net SHORT position in the 10YR Treasury CFTC futures/options contracts (consensus had the wrong answer to the question); now we’re tapping the 1.70% target zone we’ve had for a year; that’s already -47 basis points (21%) year-to-date, -132 basis points(-43%) year=over-year – global #GrowthSlowing + #Deflation.

FINANCIALS

Obviously if you have a bearish rates view, you’re short/underweight the Financials (XLE, KRE, JPM), and liking it – with Gold up, this is very reminiscent of 2011 (fully loaded with European headlines), but this time the employment cycle can turn bearish too; U.S. jobless claims breaking out  – Janet Yellen gets easier on that.

KOSPI

As consensus stares at Europe, while obviously slowing, Asian demand read-throughs don’t cease to exist – KOSPI continues to signal bearish, -1.4% overnight and re-testing 12 month lows; even if you think the U.S. economy is going to “de-couple” from this, macro markets wont.

Asset Allocation

CASH 54% US EQUITIES 4%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 9%

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

The biggest risk from the Financials sector is LEVERAGE - all time highs in NYSE margin debt @HedgeyeFIG https://twitter.com/hedgeyeJC/status/556049087725072384/photo/1

@HedgeyeJC

QUOTE OF THE DAY

I have seen that in any great undertaking it is not enough for a man to depend simply upon himself.

-Lone Man Teton Sioux

 

STAT OF THE DAY

Mars robot Beagle2 has been found 11 years after launch, it was one of the cheapest ever missions costing $76 million.