Will The Macro Mean Revert Back to TREND?

Client Talking Points

FX

The main reason for the whip around, counter-TREND, moves in macro last week was the USD whipping around – down hard mid-week, then up on the jobs report = -0.1% on the week! The USD is down this morning as the Yen couldn’t hold its Friday losses and the Euro’s risk range has tightened up (on the low-end) to 1.12-1.15.

EUROPE

Stocks in Europe don’t like Euro up and Greece down – Greek stocks failed @Hedgeye resistance for the umpteenth time last week and are -4.6% this morning to -7.2% year-to-date; German stocks -1.9% having their biggest down day since Mario Draghi’s central planning week – does he have another one pending?

UST 10YR

It was a terrible day for our rates call on Friday, but we’ve seen plenty of rate hike head-fakes in the last year, and we’ve been paid to buy long-duration bonds on every one of them. Less terrible to see the USt 10YR drop 7 basis points this morning to 1.89%, down from 2.17% where it started 2015, and still bearish TREND yield signal.

Asset Allocation

CASH 53% US EQUITIES 6%
INTL EQUITIES 4% COMMODITIES 0%
FIXED INCOME 33% INTL CURRENCIES 4%

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: +0.4% to $51.91 w/ a wicked wide risk range of $42.89-54.02

@KeithMcCullough

QUOTE OF THE DAY

When you catch a glimpse of your potential, that’s when passion is born.

 -Zig Ziglar

STAT OF THE DAY

51% of millennials believe they will receive no benefits from Social Security, and 39% think they will get benefits at reduced levels (according to a Pew Research Center survey of 1,821 young men and women 18 to 33 years old in February 2014).