PRESENTATION MAIN TITLEdocs.hedgeye.com/HE_GlobalFinancialMarkets_8.5.14.pdf · 2014-08-05 ·...
Transcript of PRESENTATION MAIN TITLEdocs.hedgeye.com/HE_GlobalFinancialMarkets_8.5.14.pdf · 2014-08-05 ·...
PRESENTATION MAIN TITLE PRESENTATION SUBTITLE JAN 1, 2015
TEAM MEMBER ONE TEAM MEMBER TWO
TEAM MEMBER THREE TEAM MEMBER FOUR
HEDGEYE 2
DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice for individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management’s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management’s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied.
TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more details please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at www.hedgeye.com
DISCLAIMER
SECTION I: QUANT SIGNALS
HEDGEYE 4
US DOLLAR: BREAKING OUT WILL THE DOLLAR CONFIRM ITS QUANTITATIVE BREAKOUT?
73.50
75.50
77.50
79.50
81.50
83.50
85.50 US DOLLAR INDEX BULLISH TREND = 80.78 BULLISH TAIL = 81.33
Data Source: Bloomberg
HEDGEYE 5
EURO: BEARISH THE EURO WOULD SEEM TO SUPPORT A BULLISH USD SCENARIO
1.30
1.31
1.32
1.33
1.34
1.35
1.36
1.37
1.38
1.39
1.40 EUR/USD SPOT BEARISH TREND = 1.36 BEARISH TAIL = 1.35
Data Source: Bloomberg
HEDGEYE 6
BRITISH POUND: BULLISH POLICY REMAINS SUPPORTIVE OF THE GBP – FOR NOW
1.50
1.55
1.60
1.65
1.70
1.75 GBP/USD SPOT BULLISH TREND = 1.68 BULLISH TAIL = 1.65
Data Source: Bloomberg
HEDGEYE 7
JAPANESE YEN: BEARISH AT BEST, THE JPY IS RANGE-BOUND AMID STRUCTURAL “5% MONETARY MATH” TARGETS
95
97
99
101
103
105
107 USD/JPY SPOT BULLISH TREND = 101.9 BULLISH TAIL = 100.03
Data Source: Bloomberg
HEDGEYE 8
US RATES: BEARISH STILL NOT BUYING CONSENSUS’ “GOLDILOCKS” STORYTELLING
2.4
2.5
2.6
2.7
2.8
2.9
3.0
3.1 UST 10Y YIELD (%) BEARISH TREND = 2.81 BEARISH TAIL = 2.61
Data Source: Bloomberg
HEDGEYE 9
EUROPEAN EQUITIES: BEARISH YES, SANCTIONS ARE A FACTOR, BUT THERE’S A LOT MORE TO THIS BREAKDOWN THAN THAT
8,050
8,250
8,450
8,650
8,850
9,050
9,250
9,450
9,650
9,850
10,050 GERMANY DAX INDEX BEARISH TREND = 9791 BEARISH TAIL = 9265
Data Source: Bloomberg
HEDGEYE 10
COMMODITIES: BREAKING DOWN A CONSUMPTION TAX CUT THAT WILL FILTER THOUGH ON A LAG
270
275
280
285
290
295
300
305
310
315 CRB INDEX BEARISH TREND = 296 BULLISH TAIL = 291
Data Source: Bloomberg
HEDGEYE 11
ENERGY: COLLAPSING WE’RE SORRY… GEOPOLITICAL WHAT?
89
91
93
95
97
99
101
103
105
107 WTI CRUDE OIL ($/bbl.) BEARISH TREND = 101.89 BEARISH TAIL = 100.27
Data Source: Bloomberg
HEDGEYE 12
GOLD: SEARCHING FOR DIRECTION THE AFOREMENTIONED SIGNALS MAKE IT TOUGH TO GROSS UP EXPOSURE TO GOLD HERE
1,180
1,220
1,260
1,300
1,340
1,380
1,420 GOLD SPOT ($/ozt.) BULLISH TREND = 1271 BEARISH TAIL = 1323
Data Source: Bloomberg
HEDGEYE 13
TACRM: “SELL EVERYTHING EUROPE!”
HEDGEYE 14
TACRM: “NOTE THE LAGGARDS” EUROPEAN EXPOSURES AND INDIVIDUAL COMMODITY MARKETS CONTINUE TO HEAD UP THE REAR
1.9x 1.9x
1.8x 1.7x 1.7x 1.6x
1.6x 1.6x 1.6x
1.5x 1.5x 1.5x
1.5x 1.4x
1.3x 1.3x 1.3x 1.3x
1.3x 1.2x
-1.4x -1.4x -1.5x
-1.5x -1.5x
-1.5x -1.6x
-1.6x -1.6x
-1.6x -1.7x -1.7x -1.7x
-1.8x -1.9x
-1.9x -1.9x
-2.0x -2.1x
-2.4x
-3.0x -2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(EWH) iShares MSCI Hong Kong ETF (FXI) iShares China Large-Cap ETF
(CHIX) Global X China Financials ETF (EU) WisdomTree Euro Debt Fund
(GMF) SPDR S&P Emerging Asia Pacific ETF (NIB) iPath Dow Jones-AIG Cocoa Total Return Sub-Index ETN
(DBB) PowerShares DB Base Metals Fund (AAXJ) iShares MSCI All Country Asia ex Japan ETF
(EWY) iShares MSCI South Korea Capped ETF (CHXX) EGShares China Infrastructure ETF
(WDTI) WisdomTree Managed Futures Strategy Fund (FOIL) iPath Pure Beta Aluminum
(BNDX) Vangaurd Total International Bond Market ETF (UUP) PowerShares DB US Dollar Index Bullish Fund
(JO) iPath Dow Jones-AIG Coffee Total Return Sub-Index ETN (EWS) iShares MSCI Singapore ETF
(FLAT) iPath US Treasury Flattener ETN (PICK) iShares MSCI Global Metals & Mining Producers ETF
(ZROZ) PIMCO 25+ Year Zero Coupon US Treasury Bond ETF (EPU) iShares MSCI All Peru Capped ETF
(UGA) United States Gasoline Fund (EWD) iShares MSCI Sweden ETF
(EZU) iShares MSCI EMU ETF (WEAT) Teucrium Wheat Fund
(EWQ) iShares MSCI France ETF (FXE) CurrencyShares Euro Trust (SOYB) Teucrium Soybean Fund
(EWN) iShares MSCI Netherlands ETF (ITB) iShares U.S. Home Construction ETF (EPOL) iShares MSCI Poland Capped ETF
(DBC) DB Commodity Index Tracking Fund (EWGS) iShares MSCI Germany Small-Cap ETF
(EWG) iShares MSCI Germany ETF (UDN) Powershares DB US Dollar Index Bearish Fund
(SGG) iPath Dow Jones AIG Sugar Total Return Sub-Index ETN (JNK) SPDR Barclays High Yield Bond ETF
(CORN) Teucrium Corn Fund (BAL) iPath Dow Jones AIG Cotton Total Return Sub-Index ETN
(EWO) iShares MSCI Austria Capped ETF (BKLN) Senior Loan Portfolio ETF
Extreme Temperatures (Top 20 Hottest and Top 20 Coldest Markets)
Data Source: Bloomberg. Temperature = Volatility-Adjusted Multi-Duration Momentum Indicator score. See TACRM™ white paper for more details.
HEDGEYE 15
TACRM: “FX & COMMODITIES SLIPPING” ASSET ALLOCATORS ARE ROTATING OUT OF FX AND COMMODITIES
Fixed Income & Yield Chasing = 24%
DM Equities = 21%
EM Equities = 24%
Foreign Exchange = 12% Commodities = 13%
Cash = 6%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
-15% -14% -13% -12% -11% -10% -9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
y-a
xis
: Se
aso
n (
pp
t. D
elt
a f
rom
Tra
ilin
g 3
M A
ve
rag
e W
ea
the
r F
ore
cast
)
x-axis: Prevailing Climate (ppt. Delta from TTM Average Weather Forecast)
TACRM GLOBAL MACRO WEATHERVANE
Weather Forecast
Data Source: Bloomberg. Weather Forecast = a relative measure of intra-asset class dispersion designed to produce a dynamic asset allocation that is optimized for existing market conditions. See TACRM™ white paper for more details.
HEDGEYE 16
IS QUAD #4 A PROBABLE SCENARIO? THE BREAKOUT IN THE USD, THE BREAKDOWN IN COMMODITIES (LED BY ENERGY) AND THE WIDENING OF CREDIT SPREADS ARE ALL SIGNALING A MOVE TO QUAD #4 IS INCREASINGLY LIKELY FOR THE US
HEDGEYE 17
WHAT IS “QUAD #4” EXACTLY? GROWTH SLOWING AS INFLATION DECELERATES… GET DEFENSIVE
1Q13 2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
-125bps
-75bps
-25bps
25bps
75bps
125bps
-75bps -50bps -25bps 0bps 25bps 50bps 75bps
x-axis: second derivative of HEADLINE INFLATION reading y-axis: second derivative of REAL GDP reading
Source: Bloomberg data;
Hedgeye calculations. Color-coded data in the
adjacent table represent actual reported figures unless
otherwise noted.
SECTION II: GIP FUNDAMENTALS
HEDGEYE 19
REVIEWING THE DOMESTIC SETUP EMPLOYMENT AND CONFIDENCE NOT RHYMING WITH EVIDENCE OF #CONSUMERSLOWING
HEDGEYE 20
COMMODITY DEFLATION SUPPORTIVE THE US CONSUMER IS GETTING UN-SQUEEZED AT THE MARGINS
-1.5% -0.3%
0.7% 1.6% 1.9%
0.3%
-0.7% -0.1%
1.5%
0.0%
1.9% 1.4% 1.5% 2.0% 2.0% 1.9% 1.7% 1.9%
0.7%
-0.5%
0.3%
-7.3% -6.9%
-2.4%
2.3%
0.4% 0.9% 1.1%
2.0% 1.8%
-0.9% -0.1% -0.2%
0.0% 0.8%
-1.0%
0.7%
-0.6%
0.9% 1.3% 1.4%
-2.4%
2.1% 2.8%
1.6% 1.1%
-0.1%
1.3% 1.0% 0.7% 0.2%
2.3%
0.1%
-1.1%
0.9% 1.8%
0.1%
-1.0% -0.2%
-0.9%
1.5% 1.5% 1.3%
-0.1% -0.9% -0.5%
2.7%
0.6%
-0.5%
0.5%
-0.3% -0.2% -0.3%
1.0%
-0.5%
0.2% 0.9%
0.2%
-0.9% -1.4%
-0.4% -0.2% -0.5%
0.1% 0.9%
1.8%
3.4%
0.9%
-0.5% -0.9% -0.9%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20% Hedgeye Macro Consumer Squeeze Index MoM Hedgeye Macro Consumer Squeeze Index YoY
The Hedgeye Macro Consumer Squeeze Index is a consumption-weighted basket of the rates of change in Rent, Food (i.e. corn, wheat, rice, poultry, pork and beef), Utilities and Gasoline prices per US median consumer PCE. Data Source: Bloomberg. Forecasts through EOY '14 assume no change to current prices, except for the price of gasoline, which is seasonal. Seasonality is taken into account in that regard.
?
HEDGEYE 21
AS ARE LAGGING INDICATORS CAPEX AND EMPLOYMENT GROWTH TENDS TO PEAK RIGHT BEFORE RECESSIONS OCCUR
2.3%
5.2% 5%
-6%
-3%
0%
3%
6%
9%
12%
15%
18%
21%
Real Gross Domestic Income: Compensation of Employees Paid (billons of 2014 dollars) - CAGR (5Y)
Real Gross Domestic Product: Nonresidential Fixed Investment (billons of 2014 dollars) - CAGR (5Y)
Real Gross Domestic Income: Corporate Profits After Tax (billons of 2014 dollars) - CAGR (5Y)
Data Source: Bloomberg. Shaded areas indicate recessions. We use a 5Y CAGR to account for the mean length of economic expansions throughout the past century.
HEDGEYE 22
HOUSING REMAINS A DISASTER AUTOCORRELATION MEANS HOUSING IS LIKELY TO REMAIN A SLOW-MOVING TRAIN WRECK
HEDGEYE 23
OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT
REGULATION IS CRUSHING DEMAND
HEDGEYE 24
THE 2Q BOUNCE CAME AND WENT THE PEAK RATE OF IMPROVEMENT IS SQUARELY IN THE REARVIEW MIRROR
100.0% 100.0%
89.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Trailing 3M Trailing 12M Trailing 3Y
Bloomberg US Economic Surprise Index (Percentile of JUL 16th YTD Peak Reading)
Data Source: Bloomberg.
HEDGEYE 25
SHHH… DON’T TELL THE FED SINCE 2010, THE FED HAS BEEN CONSISTENTLY WRONG ON ITS GROWTH FORECASTS BY AN AVERAGE OF 98 BASIS POINTS
3.2%
3.7%
2.5% 2.6%
3.5%
3.2%
2.7%
2.5%
3.3%
2.8%
1.9%
2.2%
2.5%
1.7% 1.8%
2.3%
2.5%
1.6%
2.3% 2.2%
95bps
205bps
-55bps
35bps
-100bps
-50bps
0bps
50bps
100bps
150bps
200bps
250bps
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
2010 2011 2012 2013
Q1 FOMC Forecast Q2 FOMC Forecast Q3 FOMC Forecast
Q4 FOMC Forecast Actual Full-Year Real GDP Growth Rate Maximum Mid-Year Tracking Error (rhs)
Data Source: Bloomberg.
HEDGEYE 26
SHHH… DON’T TELL CONSENSUS NEVER BEFORE IN US ECONOMIC HISTORY HAVE WE SEEN WHAT CONSENSUS IS EXPECTING FOR GDP GROWTH
3.0%
2.1%
2.5% 2.7% 2.8%
3.5%
3.1% 3.1% 3.1% 3.1% 3.1% 3.0%
1.5%
1.0%
1.8%
1.5% 1.5%
2.7% 2.9% 2.9% 3.0% 3.0% 3.0% 3.0%
2.7%
1.8%
4.5%
3.5%
-2.1%
4.0%
-2.5%
-1.5%
-0.5%
0.5%
1.5%
2.5%
3.5%
4.5%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
Bloomberg Consensus US GDP Forecast: Peak Estimate Bloomberg Consensus US GDP Forecast: Trough Estimate Actual
Data Source: Bloomberg.
HEDGEYE 27
STYLE FACTOR RISK ARE POLLYANNAISH GROWTH EXPECTATIONS ONCE AGAIN FUELING ASSET MISPRICINGS?
HIGH Dividend Yield
LOW Dividend Yield
HIGH Long-term EPS Growth
LOW Long-term EPS Growth
HIGH NTM Sales Growth
LOW NTM Sales Growth
HIGH Consensus Rating
LOW Consensus Rating
HIGH Beta
LOW Beta
y = 0.197x - 0.4283 R² = 0.8257
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
x-axis: TTM Peformance; y-axis: Trailing 3M Performance Linear (x-axis: TTM Peformance; y-axis: Trailing 3M Performance)
Data Source: Bloomberg. Average performance of top and bottom decile for given style factor and duration.
HEDGEYE 28
FOREX RISK RIGHTLY OR WRONGLY, THE CURRENCY MARKET IS BEING HELD HOSTAGE BY THE CONSENSUS MACRO NARRATIVE
79.00
79.50
80.00
80.50
81.00
81.50
82.00
82.50
83.00
-28bps
-24bps
-20bps
-16bps
-12bps
-8bps
-4bps
0bps
4bps
8bps
12bps
16bps
20bps
US Dollar Index 1YR OIS Spread (bps; weighted by DXY basket) US Dollar Index 2YR OIS Spread (bps; weighted by DXY basket)
US Dollar Index
Data Source: Bloomberg.
HEDGEYE 29
“WHATEVER IT TAKES” ECB PRESIDENT MARIO DRAGHI APPARENTLY MEANS BUSINESS
1.30
1.31
1.32
1.33
1.34
1.35
1.36
1.37
1.38
1.39
1.40
-42bps
-36bps
-30bps
-24bps
-18bps
-12bps
-6bps
0bps
6bps
12bps
18bps EUR-USD 1YR Swap Spread (bps) EUR-USD 2YR Swap Spread (bps) EUR/USD Spot (rhs)
Data Source: Bloomberg.
HEDGEYE 30
SHORT THE EURO? SINCE THE ONSET OF THE EUROZONE SOVEREIGN DEBT CRISIS, BUY-SIDE CONSENSUS HAS BEEN GOOD AT FRONT-RUNNING BREAKDOWNS IN THE COMMON CURRENCY
$1.20
$1.25
$1.30
$1.35
$1.40
$1.45
$1.50
(250,000)
(200,000)
(150,000)
(100,000)
(50,000)
-
50,000
100,000
150,000
Bloomberg CFTC CME Euro Net Non-Commercial Combined Positions (Futures and Options)
Trailing 52-Week Average
2x Standard Deviations
(2x) Standard Deviations
EUR/USD Spot (rhs)
Data Source: Bloomberg.
HEDGEYE 31
PRESSURE MOUNTING? FALLING WELL SHORT OF OFFICIAL TARGETS, IT IS LIKELY THAT DRAGHI CONTINUES TO EASE EUROZONE MONETARY POLICY OVER THE INTERMEDIATE TERM
HEDGEYE 32
OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT
BRING ON THE DEFLATIONISTAS
HEADLINE INFLATION: THREE YEARS OF SLOWING
CORE INFLATION: WELL BELOW “PRICE STABILITY”
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
EUROZONE CORE CPI YoY % CHANGE = 0.8%
SMAVG(3) = 0.8%
SMAVG(6) = 0.8%
Data Source: Bloomberg
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
EUROZONE HEADLINE CPI YoY % CHANGE = 0.4%
SMAVG(3) = 0.5%
SMAVG(6) = 0.6%
Data Source: Bloomberg
HEDGEYE 33
BLAME AUSTERITY? THE KEYNESIANS WILL TURN TO DRAGHI FOR SUPPORT
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0% EUROZONE BUDGET BALANCE/GDP RATIO = -2.1% TTM AVERAGE = -3.1%
Data Source: Bloomberg
HEDGEYE 34
BUSINESS CONFIDENCE: SOFTENING EUROZONE BUSINESS CONFIDENCE IS INFLECTING TO THE DOWNSIDE
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
10 ZEW Eurozone Assessment of Current Situation = -31.5 SMAVG(3) = -28.3 SMAVG(6) = -32
Data Source: Bloomberg
HEDGEYE 35
OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT
RUSSIAN SANCTIONS AREN’T HELPING
HEDGEYE 36
INDUSTRIAL PRODUCTION: SLOWING EUROZONE PRODUCTION GROWTH HAS INFLECTED TO THE DOWNSIDE
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0% EUROZONE INDUSTRIAL PRODUCTION YoY % CHANGE = 0.5% SMAVG(3) = 0.7% SMAVG(6) = 1.2%
Data Source: Bloomberg
HEDGEYE 37
MANUFACTURING PMI: SLOWING EUROZONE MANUFACTURING ACTIVITY HAS INFLECTED TO THE DOWNSIDE
44
46
48
50
52
54
56 EUROZONE MANUFACTURING PMI = 52.2 SMAVG(3) = 52.5 SMAVG(6) = 53.1
Data Source: Bloomberg
HEDGEYE 38
CONSUMER CONFIDENCE: SOFTENING EUROZONE CONSUMER CONFIDENCE IS INFLECTING TO THE DOWNSIDE
-30
-25
-20
-15
-10
-5
0 European Commission Consumer Confidence Indicator Eurozone = -8.4 SMAVG(3) = -7.7 SMAVG(6) = -8.9
Data Source: Bloomberg
HEDGEYE 39
RETAIL SALES: PEAKING EUROZONE CONSUMPTION GROWTH IS INFLECTING TO THE DOWNSIDE
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0% EUROZONE RETAIL SALES YoY % CHANGE = 0.7% SMAVG(3) = 1.2% SMAVG(6) = 0.8%
Data Source: Bloomberg
HEDGEYE 40
QUAD #3 INDEFINITELY? FACING A GAUNTLET OF STEEPENING GROWTH COMPS AMID DRAMATICALLY EASING CPI COMPARES
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14E
3Q14E
4Q14E
-100bps
-80bps
-60bps
-40bps
-20bps
0bps
20bps
40bps
60bps
80bps
100bps
-60bps -40bps -20bps 0bps 20bps 40bps 60bps
x-axis: second derivative of HEADLINE INFLATION reading y-axis: second derivative of REAL GDP reading
Source: Bloomberg data;
Hedgeye calculations. Color-coded data in the
adjacent table represent actual reported figures unless
otherwise noted.
HEDGEYE 41
WHAT ABOUT CHINA? EXPANSIONARY POLICY HAS STABILIZED CHINESE GROWTH
HEDGEYE 42
CHINA’S STIMULUS TAILWIND THE “PUNCHBOWL” SHOULD BE HERE FOR AT LEAST ONE MORE QUARTER
HEDGEYE 43
GET IT WHILE IT’S HOT CHINA HAS BEEN A STRANGER TO QUAD #1, SO TAKE ADVANTAGE OF BETA WHILE IT’S HERE
1Q13 2Q13
3Q13
4Q13
1Q14
2Q14 3Q14E
4Q14E
-40bps
-30bps
-20bps
-10bps
0bps
10bps
20bps
30bps
40bps
-70bps -50bps -30bps -10bps 10bps 30bps 50bps 70bps
x-axis: second derivative of HEADLINE INFLATION reading y-axis: second derivative of REAL GDP reading
Source: Bloomberg data;
Hedgeye calculations. Color-coded data in the
adjacent table represent actual reported figures unless
otherwise noted.
HEDGEYE 44
WHAT ABOUT JAPAN? POST-TAX HIKE STABILIZATION SHOULD KEEP THE BOJ AT BAY THROUGH YEAR-END
HEDGEYE 45
BOJ TO HEAT UP THIS WINTER BY YEAR’S END, TWO CONSECUTIVE QUARTERS OF EASING INFLATION SHOULD PROVIDE KURODA WITH ENOUGH MOTIVE AND POLITICAL COVER TO EXPAND QQE
1Q13
2Q13 3Q13
4Q13 1Q14
2Q14E
3Q14E
4Q14E
-250bps
-200bps
-150bps
-100bps
-50bps
0bps
50bps
100bps
150bps
200bps
250bps
-250bps -200bps -150bps -100bps -50bps 0bps 50bps 100bps 150bps 200bps 250bps
x-axis: second derivative of HEADLINE INFLATION reading y-axis: second derivative of REAL GDP reading
Source: Bloomberg data;
Hedgeye calculations. Color-coded data in the
adjacent table represent actual reported figures unless
otherwise noted.
HEDGEYE 46
UK: AS GOOD AS IT GETS FOR NOW CAMERON, OSBORNE, AND CARNEY HAVE UK INFLATION IN CHECK FOR NOW
1Q13
2Q13
3Q13
4Q13
1Q14 2Q14
3Q14E
4Q14E
-125bps
-75bps
-25bps
25bps
75bps
125bps
-75bps -50bps -25bps 0bps 25bps 50bps 75bps
x-axis: second derivative of HEADLINE INFLATION reading y-axis: second derivative of REAL GDP reading
Source: Bloomberg data;
Hedgeye calculations. Color-coded data in the
adjacent table represent actual reported figures unless
otherwise noted.
HEDGEYE 47
#VOLATILITYASYMMETRY REMAINS GLOBAL FINANCIAL MARKETS ARE STILL PRICING IN LITTLE-TO-NO BAD NEWS
-0.28
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
BofA Merrill Lynch Global Financial Stress Index (GFSI) Historical Mean = 0.14
Percentile of Latest Reading = 24.2% Percentile of Reading During Our JUL 9th Q3 Macro Themes Call = 5.4%
Data Source: Bloomberg
SECTION III: PORTFOLIO STRATEGY
HEDGEYE 49
OLD FORMAT = $800/SQUARE FT NEW FORMAT = $1,300 SQ FT
INVESTMENT CONCLUSIONS
• LONG: Long-term Treasuries (TLT)
• LONG: Muni Bonds (MUB)
• LONG: Healthcare (XLV)
• LONG: “Old China” (FXI)
• SHORT: Russell 2000 (IWM)
• SHORT: High-Yield Credit (JNK)
• SHORT: Homebuilders (ITB)
• SHORT: Regional Banks (KRE)
• SHORT: Retailers (XRT)
• SHORT: Eurozone (EZU)
• Domestic: Prepare for Quad #4 – Bonds over Stocks
– Defensives over Cyclicals
– Late-cycle over Early-Cycle
– Buy US Dollars/Sell Commodities
• International: European headwinds – Sell Europe as growth set to slow sustainably
– Buy China as policy stabilizes growth and reduces tail risk
– The monetary and fiscal policy vacuum should continue in Japan for at least another 3-4M
– Watch the USD carefully!
– #VolatilityAsymmetry?
KEY TAKEAWAYS: SPECIFIC RECOMMENDATIONS:
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