#Deflation Expectations Here To Stay

Client Talking Points

EURO

Remember that Burning Euros and Yens perpetuate what they are trying to arrest (#Deflation). The U.S. Dollar Index +9.9% for the year-to-date now, and European stocks love it – German DAX and MIB Index in Italy both punching new highs at +18.7-19.1% year-to-date vs SPX -0.7%.

YIELDS

Forget about headline news of German Bunds at 0.23% and the Swiss 10YR negative still at -0.13%, the Dutch 10YR Yield of 0.27% is now trading well inside of Japanese Government Bond 10YR of 0.42%! Real Yields in Europe are implying #deflation expectations are here to stay, for now...

U.S. EQUITY SENTIMENT

After testing all-time highs into FEB end in the II Bull/Bear Survey, the Bull/Bear Spread pulled back from +4460 basis points bullish to +3950 basis points wide this morning as front-month VIX tests the top-end of our current 14.26-17.13 risk range – good morning to be buying U.S. stocks on sentiment alone.

Asset Allocation

CASH 35% US EQUITIES 16%
INTL EQUITIES 13% COMMODITIES 0%
FIXED INCOME 25% INTL CURRENCIES 11%

Top Long Ideas

Company Ticker Sector Duration
ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.

PENN

Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.

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.

Three for the Road

TWEET OF THE DAY

apparently, Fitch Ratings is forecasting Macau gaming revenues -4% in 2015. um, i'll take the under $LVS $WYNN $MGM $MPEL

@HedgeyeSnakeye

QUOTE OF THE DAY

To succeed, jump as quickly at opportunities as you do at conclusions.

-Benjamin Franklin 

STAT OF THE DAY

Boston is 1.9 inches away from breaking it's all-time snow fall record at 105.7 inches for the season.