prev

Yields, Europe and India

Client Talking Points

UST 10YR

The UST 10YR move is getting a lot of coverage obviously, but it’s hard to believe consensus still isn’t contextualizing it within the broader move in Global Yields – this is massive volatility for sovereign bonds – on the day UST 10YR Yield +3bps, JGB +6bps, Bund +7bps, France +9bps, Spain +13bps. We didn’t nail this one. Looks #behavioral at this stage to us #charts.

EUROPE

If you can’t make money in stocks or bonds, what do you do? This is one of the main reasons for raising cash to the highest level (Hedgeye Asset Allocation Model) of the year. European stocks continue to break our immediate-term TRADE lines of support with the DAX leading losers this morning down -2.3%. If Mario Draghi lets Euro rates do this, he’ll let stocks drop faster. 

INDIA

India is one of the few markets that has been flat out weak throughout the year, irrespective of global bond/stock market moves. The BSE Sensex failed to recover @Hedgeye TREND support on the bounce last week, it is down -1.9% overnight to -1.8% year-to-date = Global #GrowthSlowing.

 

Asset Allocation

CASH 62% US EQUITIES 2%
INTL EQUITIES 4% COMMODITIES 2%
FIXED INCOME 28% 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

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.

Three for the Road

TWEET OF THE DAY

MUST SEE TV

Hedgeye CEO @KeithMcCullough joins @MariaBartiromo on @FoxBusiness @OpeningBellFBN at 9:00am.

@Hedgeye

QUOTE OF THE DAY

I know nothing with any certainty, but the sight of the stars makes me dream.

-Vincent van Gogh

STAT OF THE DAY

China's Shanghai Composite Casino tacks on another +1.6% to +36.1% year-to-date (as Chinese growth slows).

 


CHART OF THE DAY: The Momentum Mob $TLT

Editor's Note: The chart and brief excerpt below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to learn more about what we believe is the best daily market newsletter out there. 

 

CHART OF THE DAY: The Momentum Mob $TLT - z 05.12.15 chart

 

...No matter where you go this morning, here we are – in the midst of another “breakout” in US bond yields. Notwithstanding that this one has been caused by an epic breakout in Global Yields, US equity only guys looking at TLT have the “bearish chart” now inasmuch as they had the uber bearish Oil one down at $43/barrel.

 

Even though many of you were right on bond yields (lower-for-longer) for 16 months starting in January of 2014, if you remained bearish on bond yields at the 2015 lows like I did, you have been wrong (on bonds) for a month. And now the mob has you by the #charts, so it’s time to … uh, panic? ...

 


The Momentum Mob

“When the mob gains the day, it ceases to be any longer the mob.”

-Napoleon Bonaparte

 

In markets, the momentum mob constantly cares about one thing – #charts. Lots and lots and lots of charts. The linear moving average ones are the simplest to scare you with. My 5 year old daughter can generate them on an iPad, so they have the broadest demographic point-and-click appeal. It’s all about the 50 and 200 hundred day, bro.

 

No matter where you go this morning, here we are – in the midst of another “breakout” in US bond yields. Notwithstanding that this one has been caused by an epic breakout in Global Yields, US equity only guys looking at TLT have the “bearish chart” now inasmuch as they had the uber bearish Oil one down at $43/barrel.

 

Even though many of you were right on bond yields (lower-for-longer) for 16 months starting in January of 2014, if you remained bearish on bond yields at the 2015 lows like I did, you have been wrong (on bonds) for a month. And now the mob has you by the #charts, so it’s time to … uh, panic?

 

The Momentum Mob - 19

 

Back to the Global Macro Grind

 

What’s a +28% ramp (in 24 hours) in German Bund Yields, amongst friends? That’s gotta be good for “stocks”, right? Wrong. As the bond yield #charts have “broken out”, sorry bros, it’s been bad for stocks too.

 

Q: If you can’t be long stocks or bonds, what do you do?

A: Raise cash

 

At 62% Cash in our Asset Allocation Model, at least we got something right. But most of that “raising cash” came from the equity side of what we liked in Q1. That said, what you really want to know is why I didn’t do the same in Treasuries?

 

Before I try to answer that question (again), let’s contextualize this epic 1-month move in Global Bond Yields:

 

  1. US 10yr Treasury = +34 basis points (bps) to 2.34%
  2. Canadian 10yr = +45 bps to 1.82%
  3. German 10yr = +53 bps to 0.68%
  4. French 10yr = +56 bps to 0.98%
  5. Italian 10yr = +60bps to 1.86%
  6. Portuguese 10yr = +84 bps to 2.42%

 

In other words, even if you don’t look at % moves and rates of change, on an absolute basis being long Treasuries vs. short just about everything else (1 through 5 on that list) was a relative winner!

 

#Kidding

 

Not on the performance part (German Bund Yield move was +353% vs. the UST move of +17%). When it comes to getting things right/wrong, I don’t calculate losses in cocoa-puff terms. TLT 1-month losses have been real. I should be held to account for that.

 

So why didn’t I pull a Jedi mind trick on all of you and book all of our gains in the Long Bond (TLT) at the top (with bond yields re-testing their all-time lows in January, or with the 10yr UTS yield down at 1.85% in April for that matter)?

 

A: #process

 

I.e. there would be no fundamental way for me to explain it within the risk management framework in which our longer-term growth and inflation views evolve.

 

Which obviously begs the question as to whether or not a 1-month move in bond yields has rendered our #process broken OR it’s simply signaling that stocks and bonds don’t go up forever (with no volatility and no down-days).

 

To review what we believe (because market #history does):

 

  1. Both local and global bond yields falls when the rate of change in growth is SLOWING
  2. Both local and global bond yields rise when the rate of change in growth is ACCELERATING

 

With both the trending rate of change in both US and Global Growth #slowing (with our model suggesting y/y US growth slowing to 1.8% in 2H of 2015), there’s no fundamental reason for me to be bearish on Long-duration bonds other than price momentum.

 

This is where the whole #ChartChasing thing comes into play. In my former hedge fund life I used to see guys chasing 50 and 200 day moving monkeys all of the time. So I taught myself to remain calm and not do that. I shorted Russell 2000 yesterday instead.

 

If both gas prices and bond yields head higher (from here), someone is going to gain the day. And that’s not going to be the American and/or European consumer. It’ll be a mean macro mob, because their charts will tell you to be short everything.

 

Our immediate-term Global Macro Risk Ranges are now as follows:

 

UST 10yr Yield 1.91-2.32%

SPX 2079-2117
RUT 1
VIX 13.03-15.79
USD 94.09-95.89
Oil (WTI) 55.62-61.12

Gold 1170-1200

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Momentum Mob - z 05.12.15 chart


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

QE Heroes

This note was originally published at 8am on April 28, 2015 for Hedgeye subscribers.

“The hero of a tragedy, in order to interest us, should neither be wholly guilty nor wholly innocent.”

-Napoleon

 

That’s the opening volley from a brick of a recently published #history book (926 pages) that has been staring me in the face for months – Napoleon – A Life, by Andrew Roberts.

 

Research truths tend to be revealed with time. And since there’s never been a definitive history of the Corsican formerly known as “Napoleone de Buonaparte”, this one is getting what I love in a good read – polarizing reviews.

 

In many ways, this makes me think about the short history of QE (Quantitative Easing). Ben Bernanke has been quick to try to shape his own version of the story. And while I think he’s suspect in doing so, only time will tell who the real heroes are.

 

Back to the Global Macro Grind

 

As long as stock markets around the world continue to hit all-time highs, the central planners will look wholly innocent to many who think equity gains reflect economic growth. All the while, they’ll look wholly guilty to those analyzing the economic data.

QE Heroes - Card house cartoon 12.03.2014

While the Japanese and Chinese stock markets are more obvious examples of the divergence between economic reality and stock “charts”, it will be interesting to observe how the American and European narratives change alongside market prices.

 

Last night Japan reported a bomb of a Retail Sales report at -9.7% year-over-year for the month of March. That compared to a paltry -1.7% in the month prior. And the Japanese stock market went up on that…

 

In other news:

 

  1. US Stocks stopped going up at their all-time highs yesterday post a weaker US Services PMI report
  2. Services PMI (Markit report) for APR slowed to 57.8 vs. 59.2 in MAR
  3. This begged me the question – are US consumption gains from “lower gas prices” slowing?

 

Contrary to however people who don’t understand our process, models, or investment conclusions think, we’ve actually been The Bulls on the US domestic consumption and #Housing economy for the last 4-6 months.

 

Some of our conclusions were born out of the following macro stimulus:

 

  1. #StrongDollar as a net benefit to the purchasing power of Americans
  2. #Deflation in commodities, gas prices, cost of living, etc.
  3. #Lower-For-Longer on interest rates = #HousingAccelerating

 

We’ve argued this is why:

 

  1. Housing, Consumer Discretionary, Healthcare, and Consumer Tech stocks have outperformed YTD
  2. Financials and Industrials (companies negatively affected by lower rates and #deflation) haven’t performed YTD

 

So why on earth would an easier Fed that:

 

A)     Weakens the Dollar and …

B)      Re-flates commodities prices and cost of living

 

… be good for real US consumption growth?

 

You’re right. It wouldn’t be. But it might be really good for Oil & Gas and Mining stocks!

 

This puts both the internal message of macro markets (stocks, bonds, commodities, FX, etc.) and US economic reality at odds with one another again. We’ve seen this movie before.

 

We’re seeing it in Europe and Asia every trading day. Mainstream economists and strategists are constantly being pulled towards a narrative of stock market gains being congruent with economic growth and inflation expectations.

 

Just to hold them to account - what if the 2H 2015 growth bulls are right, and a #DevaluedDollar + #RisingOilPrices is bullish for US economic growth? Shouldn’t interest rates be raised earlier then too? Then what happens to Housing and Biotech stocks?

 

Alongside some 2015 US equity bears capitulating to the upside yesterday (after getting bearish in January, covering your shorts at the all-time high isn’t a good #timestamp), Mr. Macro Market delivered that very message for us all to consider:

 

  1. Biotech (IBB) -4.2%, on the day!
  2. Housing (ITB) -1.3%
  3. Silver and Gold +4.5% and +2.4%, respectively

 

This had me asking myself if what’s been a solid run being long stocks into the Fed meeting has all been priced in? I hope it hasn’t been. But that’s not a risk management process inasmuch as the QE fans aren’t my economic #history heroes.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.86-1.99%
SPX 2093-2124
RUT 1246-1275
Nikkei 19939-20288
VIX 12.02-14.91
USD 96.45-97.85
EUR/USD 1.06-1.09
WTI Oil 52.35-58.16
Gold 1175-1208

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

QE Heroes - z 04.28.15 chart


May 12, 2015

May 12, 2015 - Slide1

 

BULLISH TRENDS

May 12, 2015 - Slide2

May 12, 2015 - Slide3

May 12, 2015 - Slide4

 

BEARISH TRENDS

May 12, 2015 - Slide5

May 12, 2015 - Slide6

 May 12, 2015 - Slide7

May 12, 2015 - Slide8

May 12, 2015 - Slide9

May 12, 2015 - Slide10

May 12, 2015 - Slide11

 


REPLAY | Healthcare Q&A With Tom Tobin | $HCA $HOLX $ATHN

Hedgeye Healthcare Sector Head Tom Tobin and Analyst Andrew Freedman hosted a Q&A session today in our studio.

 

 

They provided their thoughts on the recent jobs report and how it will influence the healthcare space, discussed updates to their monthly OB/GYN survey, and gave their latest thoughts on HCA Holdgings (HCA), Hologic (HOLX) and athenahealth (ATHN).

 

Tune in next week for another live Q&A from Tom and Andrew.

 

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next