CLIENT TALKING POINTS
#DEFLATION
Despite the 3 week counter-TREND reflation move in FEB, this remains our Top Global Macro Theme right now. The Eurozone just reported lower-lows in CPI at -0.6% year-over-year and the U.S. is going to print another CPI miss on Thursday. Will Janet Yellen be as dovish as this data is going to get come JUN? Stay tuned. Her forecasts are the problem.
USD
Burning Yens and Euros perpetuate #StrongDollar, so this Yen move to -0.6% gets you new 15 year highs in the Nikkei (+0.7% overnight to +6.6% year-to-date), but it also gets you an uglier Oil price deck and falling CRB Commodities Index (-1.2% yesterday to -3.5% year-to-date). Coffee prices pounded yesterday -3.3% to -13.3% year-to-date!
UST 10YR
UST 10YR Yields finally backed off @Hedgeye resistance and remains bearish TREND ahead of both the Yellen comments and slowing CPI and GDP data (Thursday/Friday) – immediate-term risk range is now 1.85-2.16% and that made REITS the best sub-sector yesterday +0.7% vs. Oil & Gas stocks (XOP) -0.9%.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 42% | US EQUITIES | 8% | |
| INTL EQUITIES | 8% | COMMODITIES | 0% | |
| FIXED INCOME | 29% | INTL CURRENCIES | 13% |
THREE FOR THE ROAD
TWEET OF THE DAY
The Dr (Copper -0.3% to $2.53/lb) continues to get us paid on the short side, in #Deflation terms
@KeithMcCullough
QUOTE OF THE DAY
My only plan is to keep coming to work
-Henry Singleton
STAT OF THE DAY
The market cap of the largest publicly traded U.S. company Apple is for the first time in 30 years more than twice the size of the market cap of the runner up (Exxon Mobil Corp.). Apple’s cap is $765 billion, Exxon’s is $374 billion.
