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Client Talking Points

USD

We have been waiting for Janet Yellen to clarify for weeks, and that she did – no rate hike policy mistake; instead, doubling down on her long-standing rate targeting (lower for longer) policy as she cut both her inflation and growth forecasts closer to ours = Down Dollar, Down Rates --> Reflation + Yield Chasing, worldwide.

OIL

Janet Yellen’s reflation of front-month WTI lasted less than a Viagra moment (biggest pop yesterday was in the commodity and Oil & Gas equities), so now this gets really interesting with WTI retesting the $42 handle and no immediate-term support down to $41.32/barrel – EUR/USD backed off hard too; the Dollar was down for a day, but it’s not out!

UST 10YR

We continue to think that the lowest-volatility and largest asset allocation call to all of this is long-term bonds; 1.94% on the UST 10YR (and new lows of 0.19% for the 10YR German Bund); Janet is “data dependent”, and the March #deflation data (to be reported in April) is going to be ugly = lower rates for longer.

Asset Allocation

CASH 37% US EQUITIES 16%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 11%

Top Long Ideas

Company Ticker Sector Duration
MTW

Manitowoc  (MTW) is splitting the business into two companies. Given the valuation differential between the sum-of-the-parts and the current enterprise value of the company, the break-up should be a substantial positive. The low-end of our sum of the parts valuation is $26, and the low-end is not based on a MIDD comp (not that there is anything wrong with a MIDD comp).  In theory, spin-offs and break-ups unlock shareholder value while increasing operating potential of the formerly smothered units. 

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.

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

1 Min Fed Video | You Buy Everything! https://app.hedgeye.com/insights/43029-1-min-fed-video-mccullough-you-buy-everything… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Many of life's failures are people who did not realize how close they were to success when they gave up.

- Thomas Edison      

STAT OF THE DAY

85.8% of males and 66.5% of females in the U.S. work more than 40 hours per week.