China, Euro and Oil

Client Talking Points

CHINA

They had the rate cut, they had the rumor of the rate cut, they had the rate cut after the rumor of the rate cut…and the stock market went down. The Shanghai Composite was down -1.2% overnight, down for 6 of the last 7 days to -3% year-to-date. Now bearish on our trend duration, the intermediate-term risk range for the Shanghai Composite is 2917-3212.

EURO

The Euro is banging the top end of our risk range this morning, which is currently 1.11-1.14, the Euro remains in a bearish formation. This is interesting ahead of the jobs report tomorrow, there is a lot of concern (at least here at Hedgeye) and we will have to see if the bond market cares. That would be very bullish for bonds on the long end of the curve.

OIL

Another +2% bounce for WTI Oil to 49.43 with an intermediate risk range of 42.24-51.97 - trade it. Big correction yesterday on the order of 8%, there is a lot of downside in the risk range, but a bad jobs report would be bad for the USD and in turn bullish for oil (for a trade).

Asset Allocation

CASH 55% US EQUITIES 3%
INTL EQUITIES 4% COMMODITIES 2%
FIXED INCOME 30% INTL CURRENCIES 6%

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

Contributor Call: Short iRobot $IRBT, Says Spruce Capital's Axler: https://www.youtube.com/watch?v=_cT3dmZw4SE&feature=youtu.be @BenAxler

@KeithMcCullough

QUOTE OF THE DAY

Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.

-Albert Einstein

STAT OF THE DAY

China has one of the highest levels of corporate debt in the world, at 125% of GDP.


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