THEMATIC INVESTMENT CONCLUSIONS
Long Ideas/Overweight Recommendations
- Consumer Staples Select Sector SPDR Fund (XLP)
- iShares U.S. Home Construction ETF (ITB)
- SPDR Gold Shares (GLD)
- PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
- iShares 20+ Year Treasury Bond ETF (TLT)
- LONG BENCH: Vanguard REIT ETF (VNQ), Utilities Select Sector SPDR Fund (XLU), Vanguard Extended Duration Treasury ETF (EDV), Healthcare Select Sector SPDR Fund (XLV)
Short Ideas/Underweight Recommendations
- Industrial Select Sector SPDR Fund (XLI)
- iShares MSCI Emerging Markets ETF (EEM)
- SPDR Barclays High Yield Bond ETF (JNK)
- iPath S&P GSCI Crude Oil Total Return ETN (OIL)
- SPDR S&P Regional Banking ETF (KRE)
- SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)
QUANT SIGNALS & RESEARCH CONTEXT
Highlighting the Shortable Bear Market Bounce in Oil: Today we are adding the iPath S&P GSCI Crude Oil Total Return ETN (OIL) to our top five global macro short ideas, replacing the Japanese yen (FXY) which should remain range bound for at least two more months.
Recall that the securities highlighted above represent our intermediate-term investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework.
GIP Model Backtest Results (which form the basis of our long/short biases that are ultimately confirmed/disconfirmed by the market):
***It’s worth restating that we wouldn’t necessarily be long or short each of these securities at every price; our Real-Time Alerts platform best summarizes our conviction (or lack thereof) in each idea in the most immediate of terms.***
The purpose of refreshing and reviewing our list of thematic investment conclusions on a daily basis is to communicate our investment biases to those of you who are less transactional – either because of size constraints in the process of getting in/out of positions OR because of the higher costs associated with a higher frequency of transactions. Ideally, one would only be long securities on the days they go up in price and short those securities on the days they go down in price, but that’s obviously easier said than done – especially in the context of institutional mandates to remain fully invested.
Moving along, we still see downside in the price of crude oil over the intermediate term and our core quantitative screens support that investment conclusion:
- WTI remains bearish TREND and TAIL with immediate-term upside to $51.31 in the context of this counter-TREND correlation risk move due to the U.S. dollar arresting its ascent
- The OIL ETF has a Volatility-Adjusted Multi-Duration Momentum Indicator reading of -0.58x; in the context of a pervasive trend of negative beta at the primary asset class level, we find this consolidation in both price and volatility to be very shortable
#Quad4 continues to get priced into the preponderance of global financial markets on a trending basis, so until that changes, we will remain generally bearish on commodities (sans gold) – crude oil in particular. While well off the highs, the net speculative length of +324k contacts remains the largest net long position in the history of the futures and options markets.
All told, while not nearly as crowded as it once was, crude oil remains a crowded long and we would avoid “bottom fishing” in this asset class until you can connect the dots on a material pullback in the U.S. dollar beyond the immediate-term.
***CLICK HERE to download the full TACRM presentation.***
TRACKING OUR ACTIVE MACRO THEMES
Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds.
The Hedgeye Macro Playbook (1/29)
#Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.
Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014. 2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.
EARLY LOOK: USA Inc. (1/30)
Best of luck out there,
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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.