• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Client Talking Points

JAPAN

A big short squeeze in the Yen to kick off 2016 has the Nikkei down every day in 2016 – and this is on the heels of Kuroda saying he’ll do “whatever it takes” twice in the last 2 weeks! The Nikkei is down -1.0% overnight and down -6.7% in the last month.

SPAIN

Spain is still our favorite European short idea as the lefties are going to meet their maker economically. The IBEX is breaking down to new lows this morning and is down -7.9% in the last month now that most of Spain’s economic cycle data (including PMI) has peaked/rolled (bearish Euro).

OIL

Oil is down another -1.3% this morning has to be the darndest looking “transitory” thing we’ve seen in our macro lifetimes – it’s not transitory, it’s called #Deflation – and this will continue to perpetuate a credit cycle that is about to break out (credit spreads) to new cycle highs.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 68% US EQUITIES 2%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 20% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
FII

With the Fed's 25 basis point hike in interest rates, in the financial sector, FII stands to benefit most from even this marginal change.

 

In essence, Federated Investors (FII) has a stable business for what we think will be a volatile 2016. 2015 finished with slight positive inflows into the firm's main business line, money market or cash products. This is reminiscent of the start of cash builds in 1999 and 2006 ahead of the negative returns in risk assets in 2000 and 2007.

RH

RH is our top long idea in all of retail, and we view the recent weakness in the stock as a buying opportunity. All in we think the company will build to $5bn in sales at mid-teens operating margin which equates to $11 in earnings power. This growth and profitability comes from...

  •  ~30% Square footage growth with new full line design galleries.
  • New businesses, like Modern and Teen, that can be easily layered over its low cost infrastructure.
  • Leveraging occupancy from the "sweet heart" real estate deals the company is getting as a high end traffic driving tenant willing to take anchor size leases. 
TLT

The yield spread (10Y’s -2Y’s) compressed to a 52-week low of 120 basis points last week.  AGAIN, that’s a 52-week low in growth expectations right after “lift-off”. Into year-end, the bond market continues to price in what it has all year long: #Slower-and-lower-for-longer.

 

We continue to believe deflation will pressure the policy-fueled leverage embedded in junk and high yield bond markets. The cheap money, corporate credit boom inflated asset prices and it has more room to deflate. This deflationary run started in the second half of 2014, with the introduction of our #Deflation theme. Back then, was also the low in cross-asset volatility and the high in outstanding corporate credit (commodity producers chasing inflation expectations were the largest contributor).

Three for the Road

TWEET OF THE DAY

5 Must-See Cartoons That Sum Up The Macro Environment https://app.hedgeye.com/insights/48383-5-must-see-cartoons-for-the-current-macro-environment

@KeithMcCullough

QUOTE OF THE DAY

A stumbling block to a pessimist is a stepping stone to an optimist.

Eleanor Roosevelt              

STAT OF THE DAY

General Motors said it will invest $500 million in Lyft Inc and laid out plans to develop an on-demand network of self-driving cars with the ride-sharing service. GM’s investment accounts for half of Lyft's latest $1 billion fundraising round.