CLIENT TALKING POINTS
Asia
This ramp chart on the Hang Seng is something to see, up another +1.2% overnight (8th day in a row) and +15% in the last month to +16.1% year to date; KOSPI ripped another +1.4% to its highest level since AUG 2011 (Chinese Stocks up another +1.9% to +24.7% year to date for the Shanghai Comp).
US Dollar
I was seeing NYC investors all day yesterday and there are a lot of people looking for the USD to decline (and Oil to rise) – not happening as the USD is +2.6% week over week to 99.29 on the USD Index and WTI is re-testing a breakdown through $50; Euros continue to burn, $1.06 last – staying with our #StrongDollarDeflation theme.
Europe
My oh my are these stock markets in Europe incredible to watch – DAX is +1% this am to fresh year to date highs of +25.4% and places like Denmark are +35.7% year to date. They love the smell of Burning Euros, and how could you blame them? European profit margins are going up on this FX move like US ones did when the USD was devalued.
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 | 14% | |
| INTL EQUITIES | 16% | COMMODITIES | 0% | |
| FIXED INCOME | 31% | INTL CURRENCIES | 10% |
THREE FOR THE ROAD
TWEET OF THE DAY
OIL: not delivering for the bulls as #StrongDollar Deflation continues to dominate -1.1% = $50.25
@KeithMcCullough
QUOTE OF THE DAY
“The secret of getting ahead is getting started.”
-Mark Twain
STAT OF THE DAY
The total year-to-date outflow from domestic equity funds increased by nearly two thirds to -$8.8 billion as of April 1st from -$5.4 billion as of March 25th. This asset class is doing especially poorly this year. From 2007 through 2014, excluding 2008, domestic equity funds lost -$68.6 billion per year on average. However, even with those outflows, average first-quarter domestic equity flows were neutral. On the other hand, as we show in the chart below, this year's Q1 flow sits -$8.8 billion below the ex-2008 average of +$26 million. Post-2006, the only years that had worse domestic equity outflows in the first quarter were 2008 at -$41.0 billion, 2009 at -$27.3 billion, and 2012 at -$19.2 billion. By the end of those years, investors had pulled -$157.0, -$40.6, and -$167.9 billion, respectively, from domestic equity funds. Given the asset class' year-to-date outflows in what is usually the best quarter of the year, things do not look so rosy for domestic active managers.
