Quarter-end Markup

Client Talking Points

CHINA

The dude from the PBOC called it a “very huge” growth problem in Q1, so the Chinese are going to bet on very huge stimulus as a result! Shanghai Composite ramps another +2.6% overnight to +17.1% year-to-date and +65% from the OCT lows.

USD

It’s a #StrongDollar morning, and we like it – EUR/USD backed off our $1.10 resistance, hard, last week and is back down to $1.08 this morning – German Stocks love it +1.4%, erasing all of last week’s losses at +22.7% year-to-date – Denmark +30.1% year-to-date!

OIL

Get the Dollar right and you’ve been getting Oil right, for 8-9 months – staying with our Commodity #Deflation call as WTI backed off the top-end of my range - risk range is now $42.82-51.40, signaling lower-intermediate-term highs yet again.

Asset Allocation

CASH 26% US EQUITIES 16%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 26% INTL CURRENCIES 17%

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. 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.

Three for the Road

QUOTE OF THE DAY

Life is the art of drawing without an eraser.

-John W. Gardner

STAT OF THE DAY

The Euro bounced +0.6% to -10.0% year-to-date vs the USD.


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