Greece, Germany and China

Client Talking Points

GREECE

There is increased speculation that the Greek government may default. The Greek Prime Minister’s office adamantly denied that it would pursue the strategy of defaulting on its debt. There are however, several leaks to major newspapers that Greek negotiations are not working out and that there is real potential of a default. Greece currently has more than 315 billion in Euro denominated debt outstanding. 

GERMANY

The German finance ministry upped their outlook for growth in 2016 to 1.6% from 1.5% in 2015.  We are holding an institutional conference call today at 11:00AM ET to detail why we still like Germany equities on the long side. CLICK HERE to watch a short segment in which Hedgeye's Director of Research, Daryl Jones, highlights the key points of our bullish thesis on German stocks ahead of today's call.

CHINA

China's GDP appears poised to miss expectations and debt is set to accelerate.  On the Chinese debt front there are actually two important points to highlight A) margin debt in China, when adjusting for the relative size of the markets, is double that of the NYSE; and B) leverage for Chinese companies is at the highest level since 2004 and debt relative to assets is that the highest level since 2007.

 

Asset Allocation

CASH 33% US EQUITIES 12%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 32% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
MTW

Manitowoc  (MTW) is splitting the business into two companies. While the crane business receives the most attention in part due to its cyclicality and because they are well, more noticeable, Manitowoc’s other business, Foodservice equipment, is the larger of the two in terms of operating income (60% vs. 40% for Cranes). Several indicators are pointing towards upward momentum for MTW’s Foodservice business. Restaurant same store sales have benefitted since the drop in oil prices. Furthermore, an indicator by the National Restaurant Association, RPI Capital Expenditures Index, has surged recently in part due to lower fuel prices driving restaurant traffic and restaurant owners’ outlook.

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was again strong in the latest week with Pending Home Sales, HPI and Purchase Demand all accelerating to close out March. Pending Home Sales rose +3.1% sequentially in February with signed contract activity up a remarkable +12% YoY, taking the index to a new 19-month high. Mortgage Purchase Applications – the most real-time, high frequency housing demand indicator - rose +5.7% WoW on the back of last week’s +4.9% advance and accelerated to +7.6% on a year-over-year basis. HPI: The Case-Shiller 20-city series showed home prices grew +4.6% year-over-year in January.  A stabilization/inflection in home price growth is important as housing related equity performance tracks the slope of home price growth strongly.

TLT

It was another week of declining long-term yields getting you paid on the long-side of Low-volatility Long Bonds (TLT). To reiterate our view over the longer-term, we pin a good chance the U.S. Dollar will reach new highs ($120 anyone?) with the probably of long-term Treasury yields reaching all-time lows very much in play.

Three for the Road

TWEET OF THE DAY

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QUOTE OF THE DAY

I am a slow walker, but I never walk back.

Abraham Lincoln

STAT OF THE DAY

The number of golfers in the U.S. has declined by 5mm, or 16%, in the past six years. On the flip side, the number of rounds per player is up 12% to 19 rounds per year over that same period.