China, Greece and The UK

Client Talking Points

CHINA

The PBOC lowered one-year lending rates by 0.25% to 5.10% and decreased deposit rates by 0.25%, lowering the benchmark one-year rate to 2.25%. The chief economist said the latest rate cuts "aren't QE." Chinese equities and Asian equities broadly acted positively on the news. The Shanghai Composite Casino was up about +3% to +34% year-to-date.

GREECE

European Finance Ministers meeting today to discuss the next steps with Greece. The big catalyst for Greece is obviously a payment to the IMF that is due Tuesday. Greece has come out and said that they will make that payment where as a few EU Ministers have suggested that they might not make it. Greek equities are down about 3% and the Greek Banks are reacting accordingly. 

UK

The Bank of England kept the base rate unchanged at 0.5%, the bank rate has been at a record low of 0.5% since March 2009. They also effectively said QE will remain unchanged as well (at £375 billion/$578 billion).

Asset Allocation

CASH 60% US EQUITIES 4%
INTL EQUITIES 5% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
VNQ

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The highly anticipated Non-Farm Payrolls report came and went Friday, and it was largely a non-event. The change in non-farm payrolls was +223K vs. consensus estimates of +228K for April. Considering last month’s report was a bomb (revised to 85K from 126K), April had an easy comp. Our thesis on interest rates remains lower-for-longer, but that view is being tested in the short-term.

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. It was a relatively light data week for housing with weekly mortgage application data and the March employment report offering incremental updates on the current state of housing demand.  On the market side, interest rate volatility remained a concern for the public homebuilders but one we believe remains shorter-term in nature absent another expedited, step function increase in interest rates. We think the rate related pressure will be largely transient unless we see a further back-up in mortgage rates on the order of +50-100bps from here – a potentiality we would not view as probable at this point. On the fundamental side, the drumbeat of improvement remains ongoing.

TLT

The U.S. dollar has gone on a big reversal since the Fed’s March 18th meeting. Since the meeting, the dollar has moved lower and rates higher. This short-term move in rates has caused confusion with respect to our lower for longer call. Put simply, we have been wrong on the direction of our four macro tickers in the newsletter. A continuation of this trend will force us to re-evaluate the longer term call.

Three for the Road

TWEET OF THE DAY

NEW VIDEO

Breaking $BAD?

Why These Stock-Pitch Contest Winners Say Buy Badger Daylighting

https://app.hedgeye.com/insights/44021-breaking-bad-why-these-stock-pitch-contest-winners-are-long-badger-d via @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

Always borrow money from a pessimist. He won’t expect it back.

-Oscar Wilde

STAT OF THE DAY

California grows half of the fruits and veggies produced in the U.S., including more than 90% of the country's grapes, broccoli, almonds, and walnuts.

 


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