Late-Cycle Macro Factors Matter

Client Talking Points

#DEFLATION

Sorry for sounding like a broken record on this, but not really – because #deflation remains grossly misunderstood. CRB Index hit another new low yesterday at 216 (-6% year-to-date, -31% last 6 months) with Nickel chasing Copper lower -3.4% as Chinese Industrial profits of -8% year-over-year are as bad as their marked up stock market has been good. 

UST 10YR

UST 10YR gets the global #GrowthSlowing + #Deflation theme; they tried to bounce rates intraday yesterday, but that only lasted a few hours and the UST 10YR is right back down at 1.81% this morning with no immediate-term support to 1.75%, then 1.52% after that – don’t forget that Q414 GDP report is pending on Friday and should slow vs. Q3.

EARNINGS

The mainstream/sell-side is about anything but this right now – worst start to an EPS season in 6 years. Only 33% of companies are registering sequential acceleration in sales growth thus far, only 40% registering sequential margin expansion, and just half registering sequential acceleration in earnings growth.

 

*SPECIAL ALL-DAY LIVE EVENT ***TOMORROW JANUARY 28TH

WATCH and INTERACT with CEO Keith McCullough and Hedgeye's analysts as they discuss the stock market, economy and more all in real-time. They will answer your questions live via email, phone, Twitter and chat throughout the entire trading day. 

   

Special appearances by market experts, including best-selling "Currency Wars" author James Rickards, money manager Michael Holland, Jones Trading chief market strategist Michael O'Rourke and many more. CLICK HERE to sign up.

Asset Allocation

CASH 52% US EQUITIES 5%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 33% INTL CURRENCIES 7%

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

Oil continues to suck wind at $45.21 WTI (-15% YTD - started 2015 at $53.27)

@KeithMcCullough

QUOTE OF THE DAY

The revolution is not an apple that falls when it is ripe. You have to make it fall.

-Che Guevara

STAT OF THE DAY

Craft brewers on average use 4.17 times as much barley as brews from U.S. beer giants InBev and MillerCoors, according to the USDA. Non-craft beer brewers use an average of 16.5 pounds of barley per barrel, while craft beer producers use a whopping 68.7 pounds per barrel.


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