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Client Talking Points

VIX

A critical component to our model is how we model historical volatility (as a leading indicator), and it’s signaling a range of 12.07-14.32 on front-month right now – that’s bullish for equity beta. We’ll see if the Fed is the catalyst the market has been sniffing out (SPX only -0.5% off her all-time high as of yesterday’s close).

10YR UST

Very loud chorus of Bond Bears yesterday (Gross on German Bunds, and in the U.S. some said the Housing data was “too good”, so the Fed would hike?); all that did was tap the top-end of our 1.84-1.99% immediate-term risk range for 10YR UST – buy more bonds at the top-end of the yield range.

GOLD

Another clean cut way to play an easier Fed (Down Dollar) and rates at the top-end of the range is obviously buying Gold at the low-end of its $1181-1208 range – we haven’t been a Gold Bull lately, but we have no problem changing our mind, from a time/price.

Asset Allocation

CASH 31% US EQUITIES 14%
INTL EQUITIES 16% COMMODITIES 4%
FIXED INCOME 31% INTL CURRENCIES 4%

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

VIDEO (4mins on Fox) Here's How We're Playing 'Rates Down' https://app.hedgeye.com/insights/43663-mccullough-to-bartiromo-on-fox-business-here-s-how-we-re-playing-rat

@KeithMcCullough

QUOTE OF THE DAY

The genius thing that we did was never give up.

Jay-Z

STAT OF THE DAY

The first YouTube clip was shared 10 years ago.