CLIENT TALKING POINTS
UST 10YR
UST 10YR Yield down to 1.87% after CPI for FEB being -0.03% year-over-year and a very tough comp pending in MAR – if the Fed is “data dependent” they’ll get their dovish #deflation data in April (when MAR data is reported). The next immediate-term support line for the UST 10YR is 1.82%, and we’re staying with a re-test of the year-to-date lows as our TREND call.
HOUSING
Evidently a lot of funds were short U.S. housing on the FEB “weather” and that New Home Sales print of 539,000 for FEB took the sub-sector to year-to-date highs (+8.1% vs SPX +1.6% year-to-date); guess what the weather does, sequentially, in March and April? Another great way to be long lower-rates-for-longer too.
FINANCIALS
Financials (XLF) are not a great way to be long lower-rates-for-longer; Yield Spread (10s/2s) compressing right back to year-to-date lows and the sector is now -1.5% year-to-date (vs. TLT +5.8%). Next to Energy stocks, Financials remain our favorite U.S. Sector Style short idea here.
TOP LONG IDEAS
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. Recent nonresidential and nonbuilding construction data remains firm for 2015, which suggests that MTW’s crane sales should see a pickup in the first half of the year. The Architecture Billings Index (a survey of architects) typically leads nonresidential and residential construction spending by approximately 9-12 months. More importantly, the ABI Index leads MTW Crane Orders by 2 quarters.
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. Builder Confidence retreated for a 3rd consecutive month in March and New Home Starts in February saw their biggest month-over-month decline since January 2007. We think the underlying reality is more sanguine with the preponderance of the weakness in the reported February data largely attributable to weather.
While labor supply constraints may serve as a drag to builder confidence, presumably it is rising demand trends that are driving tighter conditions in the resi employment market. All else equal, we’d view improving demand as a net positive. On the New Construction side, while the sharp drop in Housing Starts captured most of the headlines, we believe the real story was in the 3% gain in permits. We'd expect to see a big rebound in the next two months in housing starts as the data plays catch-up to the thaw.
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. Most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.
Asset Allocation
| CASH | 29% | US EQUITIES | 16% | |
| INTL EQUITIES | 14% | COMMODITIES | 0% | |
| FIXED INCOME | 26% | INTL CURRENCIES | 15% |
THREE FOR THE ROAD
TWEET OF THE DAY
The live and interactive #MacroShow is back, @KeithMcCullough starts at 8:30AM ET Click here: https://app.hedgeye.com/insights/43144-the-macro-show-live-with-keith-mccullough-at-8-30am-et
@Hedgeye
QUOTE OF THE DAY
You’ve got to tell your money what to do or it will leave.
-Dave Ramsey
STAT OF THE DAY
Headline U.S. CPI increases +0.2%, positive for the 1st time in 4 months and improves to +0% year-over-year (although it’s still negative at -0.03% if you carry out the decimal another place).