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Client Talking Points

RUSSELL 2000

One of the sneaky ways to be long #StrongDollar is being long the Russell 2000 vs the S&P 500 – that’s because the Russell gives you domestic revenues, whereas SPX gets you the wrong kind of foreign currency exposure to the USD. The Russell was up another +0.4% yesterday to an all-time closing high of 1254 (+4.2% year-to-date) vs SPX down -0.5% on the day (+1.5% year-to-date) #divergences.

JAPAN

The Japanese Nikkei loves that smell of Burning Yens, up another +0.4% overnight to fresh 15 year highs = +12.2% year-to-date as Bank of Japan Governor Haruhiko Kuroda made a bunch of stuff up about his inflation hopes and said he was going to get “innovative with monetary policy” – thanks buddy (in English that means he’ll go from 90 Trillion Yen in money printings to > 100 Trillion).

UST 10YR

It was a good week for longer-term investors who get #Deflation and global #GrowthSlowing. The UST 10YR was down -14 basis points on the week to 1.97% this morning, with next support at 1.91% and resistance at 2.05% - lower for longer remains our call on rates.

Asset Allocation

CASH 35% US EQUITIES 16%
INTL EQUITIES 13% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 12%

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

VIDEO (1min) Trade the Market Using Math, Not Magic https://app.hedgeye.com/insights/43052-mccullough-trade-the-market-using-math-not-magic

@KeithMcCullough

QUOTE OF THE DAY

It's not necessarily the amount of time you spend at practice that counts; it's what you put into the practice.

-Eric Lindros     

STAT OF THE DAY

In 2014 the average price of brisket increased 47% from 2013, this year it is up 14%.