2nd Big Capitulation Day

Client Talking Points

USD

Meanwhile the U.S. Dollar continues to break down from an immediate-term TRADE perspective as the U.S. economic data continues to slow in rate of change terms. The EUR/USD risk range has tightened up as well (higher-low, which is new) to  1.09-1.13.

OIL

Oil loves Down Dollar; absolutely loves it – but does the consensus Consumer bull case on “lower gas prices”? WTI is up another +1.2% this morning to $61.53 and is also signaling higher-lows within its $55.06-62.36 risk range. 

UST 10YR

Epic moves in the UST 10YR, almost daily, now – but the Bond Bears were backed off by another 13-14 basis points on the UST 10YR from around this time yesterday (2.36% drops to 2.22%). We would have to see a sustainable close > 2.39% to shake us out of Treasuries.

Asset Allocation

CASH 62% US EQUITIES 2%
INTL EQUITIES 4% COMMODITIES 3%
FIXED INCOME 27% 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 | Will Rising #Rates Derail The #Housing Train?

https://app.hedgeye.com/feed_items/44061-video-will-rising-rates-derail-the-housing-train

via @HedgeyeUSA + @Hedgeye_Comdty

cc @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

We all have experiences in our lives that change us, and we all learn from people, like my dad, but at the end of the day, it's only us. And we're only responsible to make ourselves happy.

Tom Brady 

STAT OF THE DAY

The average American walks a total of 110,000 miles in their lifetime, that’s equivalent to 4 times around the world.


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