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Client Talking Points

UST 10YR

The UST 10YR Yield broke down through what the moving monkeys call support and has been doing what its been doing for the past 17 months which is making a series of lower highs. It has been a great week to be Long the Long Bond not only in the U.S. but in Germany, France and Italy as well. The immediate term risk range for the UST 10YR Yield is 1.98-2.20% (bearish).

ITALY

Italian PPI was down 2.3% year-over-year vs down 2.4% the prior month, CPI was up 0.2% vs 0.1% the prior month. This is just terrible if you are a producer, and this is the problem with GDP for a lot of countries that sell inflation expectations in their top-line (when inflation starts to fall GDP starts falling). 10YR bond yields are reflecting slower growth in Italy and Europe as a whole.

OIL

Immediate term risk range for WTI Oil is 57.01-61.35 (bullish). We like the series of events that was going to be a bad GDP report, a potential bad jobs report next week and then a Dovish Fed on June 17th. Our signal says short the USD (for a short term trade) be long Oil, long gold and long those things that are yield chasing. 

Asset Allocation

CASH 46% US EQUITIES 5%
INTL EQUITIES 10% COMMODITIES 13%
FIXED INCOME 24% 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). Unless the Fed wants to show the world it has the power to go both ways on rates, we don’t think the Fed will ever be able to justify hiking interest rates. We expect an unarguable slowing of the current economic cycle by Q4 of this year. If you think domestic economic growth is slow now, just wait until the U.S. economy faces very difficult growth and inflation comps in the second half of 2015.

ITB

Housing got its mojo back in May, rebounding strongly over the last couple of weeks alongside the moderation in rates and ongoing strength in reported price/volume data. Below is a round-up of the data thus far in 2Q:

  • Housing Starts:  New 7-year high in the latest month
  • Purchase Applications (existing market):  2Q15 Tracking +14% QoQ and +13% YoY, on pace for best quarter in two years.
  • Pending Home Sales (existing market):  PHS are up an average of +11.8% year-over-year the last two months
  • New Home Sales (new market):  NHS are up an average of +22.5% year-over-year the last two months
  • HPI:  After a year of discrete deceleration in home price growth in 2014, 2nd derivative HPI has seen 3 consecutive months of acceleration through the latest March data.
TLT

The strength of the labor market continues to be a good indicator of our positioning in the current cycle:

  • Seasonally adjusted jobless claims came in at 274k last week vs. 270K est.

Despite the slight miss, the rolling 4-week SA figure dropped to 266.3k (lowest rolling SA figure since the week ending April 15th, 2000, which also came in at 266.3k) We all know what happened afterwards…..

Three for the Road

TWEET OF THE DAY

VIDEO (1min) The Biggest Threat to the Stock Market https://app.hedgeye.com/insights/44346-mccullough-this-is-the-biggest-threat-to-the-stock-market… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Don’t be fooled by the calendar. There are only as many days in the year as you make use of.

Charles Richards

STAT OF THE DAY

GDP print was -0.7% quarter-over-quarter with the year-over-year revised to +2.7% (from +3.0%). 

 

The Macro Show - CLICK HERE to watch today's replay.