USD, Bonds and Sentiment

Client Talking Points

USD

It doesn’t take much to whip the correlation risk around between the USD and Oil; on the BOJ Burning Yen move, USD stabilizes, Oil drops -1.5%, and the Nikkei ramps +1.2% to new year-to-date highs of +4.3%. Get the USD right, you get a lot of things macro right.

UST 10YR

Daily body blows for us staying with the lower-rates view in FEB – the UST 10YR was at 2.16% this morning with a wide refreshed risk range of 1.70-2.18%. We are seeing massive percentage moves off the lows, but the UST 10YR was at 2.26% only 2 months ago. We’ll see if #deflation in the PPI today, Fed Minutes, and/or the CPI next week will matter to the hawkish narrative – FEB jobs report really matters now.

SENTIMENT

U.S. stock sentiment bottomed after the JAN selloff, with Bulls in the II FEB 3rd survey hitting 49% (bears = 16.3%, and the Bull/Bear Spread = +3270 to the bullish side). Today that’s +30% more bullish with Bulls ramping back up to 56.6%, and few admitting bearishness at 14.1% Bears (close to all-time lows, putting the Bull/Bear Spread of +4250 near all-time highs).

Asset Allocation

CASH 41% US EQUITIES 9%
INTL EQUITIES 7% COMMODITIES 0%
FIXED INCOME 33% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
EDV

You want to own the Vanguard Extended Duration Treasury (EDV) in this current yield-chasing, growth slowing environment. The trend in domestic growth continues to signal growth slowing, and the counter-TREND moves we’ve seen over the last few weeks (@Hedgeye TREND is our view on a 3-Month or more duration) remain something to fade until we can see more follow-through that growth is trending more positively (second-derivative positive).

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

HOLX

Hologic (HOLX), at this stage in their product cycle and in the current stage of the economic cycle, has some very impactful tailwinds emerging to their revenue growth and the implied growth in the future. A stock generally will perform really well when doubt about future growth turns to optimism while the most recent data confirms the optimism. So far, we have a little bit of both; recent positive data like the December 2014 quarter upside and consensus estimates and ratings starting to move off of multi-year lows. A less-worse trend in Pap testing and rising patient volume can combine to get us close to flat for HOX’s Cytology (Pap) business. As the growth in Cytology improves and is less of a drag, the 3D Mammography growth can flow through. We think the outlook is bright, and with a few more data points, we think a lot more investors will agree with us.

Three for the Road

TWEET OF THE DAY

COPPER: we remain bearish on #Deflation and the Dr. at -9.1% YTD $2.57/lb

@KeithMcCullough

QUOTE OF THE DAY

Do not let what you cannot do interfere with what you can do.

-John Wooden

STAT OF THE DAY

The typical order at Chipotle has about 1,070 calories. That’s more than half of the calories that most adults are supposed to eat in an entire day. The recommended range for most adults is between 1,600 and 2,400.


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