China, USD and Housing

Client Talking Points

CHINA

The Shanghai Composite is up another +2.4% this morning to +36% year-to-date (new high) and, get this, +92% since growth and inflation really started to slow in Oct of 2014! A *Record* weekly gain in Chinese stock brokerage accounts opened this week (3.25M) per Sina.com.

USD

The U.S. Dollar backs off again this morning as macro markets continue to price in a Lower-For-Longer Fed (FOMC meeting is next week) - both our Foreign Currency and 10YR UST Yield risk ranges are tightening now – that implies less short-term volatility in both big macro markets if the Fed delivers on dovish (for now).

#HOUSING

We’ll see where the bears live today/tomorrow as we get both Existing and New Home Sales reports; ITB (our favorite Housing ETF) +1.4% in a down tape yesterday – that sub-sector is +8.6% year-to-date and we think for good fundamental reasons.

 

Asset Allocation

CASH 32% US EQUITIES 14%
INTL EQUITIES 16% COMMODITIES 2%
FIXED INCOME 30% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
MTW

MTW revised down its 2015 guidance for the Foodservice Equipment segment and preannounced a weaker than expected 1Q 2015. Sales in the quarter are a noteworthy miss, but we do not believe that the release has relevance for our sum-of-the-parts valuation thesis, and see many reasons to anticipate stronger operating results in 2H 2015.  Basically, we think investors stand to be paid for suffering through this volatility, with potential share price upside on separation ranging from the high 20s to low 40s. Near-term profit weakness is partly why the shares are ‘cheap’, and we think holders may be compensated well for the volatility. The shares are currently trading lower on a weaker than expected 1Q15, but 2Q15 should show improved Crane segment results and 2H should show better Foodservice Equipment results.

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was mixed in the latest week with the April homebuilder confidence survey (NAHB HMI) putting in a strong sequential improvement, while March Housing Starts were a bit soft. The National Association of Home Builders (NAHB) released its April Housing Market Index survey (HMI) – essentially a survey of builder confidence. The print was strong as it showed a nice bounce across all three survey categories: traffic of prospective buyers, current conditions, and expectations 6 months out.  Housing Starts were up sequentially in March, but by less than the market expected. Total Starts rose by 2% to 926,000 (seasonally-adjusted annualized rate) from 908,000 in February.

TLT

On the domestic fixed income front we’re looking at lower yields for longer. Lower yields benefit those slow-growth fixed income cash flows tied to the treasury curve (yields down, bonds up). TLT sets-up nicely in a slow-growth, deflationary setting because inflation missing=expectation for even easier policy=more central-planning cowbell=lower yields for longer.

Three for the Road

TWEET OF THE DAY

On the domestic fixed income front we’re looking at lower yields for longer. Lower yields benefit those slow-growth fixed income cash flows tied to the treasury curve (yields down, bonds up). TLT sets-up nicely in a slow-growth, deflationary setting because inflation missing=expectation for even easier policy=more central-planning cowbell=lower yields for longer.

QUOTE OF THE DAY

Seize the day, and put the least possible trust in tomorrow.

Horace

STAT OF THE DAY

Purchase Applications are up +5% week-over-week and accelerating to +15.4% year-over-year.