Greece, Earnings and Germany

Client Talking Points

GREECE

The news for Greece remains primarily negative, no reform list has been submitted by Greece which is a big issue for the Eurogroup. A Eurogroup Chair member came out and said there are still wide differences that remain. The Greek Foreign Minister is being criticized by EU colleagues. The one bright spot is that Germany has said that they see some progress being made.

EARNINGS

72% of U.S. companies have beat earnings estimates, which is a positive and in-line with the 5-year average. However, the blended rate of earnings and revenue growth is down -3.4% in Q1 year-over-year. The big driver of this draw down is likely the energy sector.

GERMANY

Germany remains one of our top long ideas in Macro. The recently released IFO data was mixed. IFO’s current conditions index rose to 113.9 in April from 112.1 in March, while a measure of expectations fell to 103.5 from 103.9. The IFO's business climate index rose for a sixth month to 108.6 from 107.9 in March. 

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

3.26 million new retail brokerage accounts opened in China . . . . This week ! #TradingTheDragon @HedgeyeDJ

QUOTE OF THE DAY

We are really competing against ourselves, he have no control over how other people perform.

Pete Cashmore

 

STAT OF THE DAY

Roughly 83 million Americans age six and over (about 28% of the population), reported that they did not once participate in any of 104 specific physical activities in the last calendar year which qualifies them as "totally sedentary" (survey results by the Physical Activity Council).