You Can’t Sugarcoat It

You Can’t Sugarcoat It

CLIENT TALKING POINTS

REGISTER THE SENTIMENT

The bulls enjoyed their high-fiving of 1400 on the S&P 500 yesterday. That’s fine, but we’ve got two indicators that are cause for concern. Going back to the VIX, it’s about to seriously test our long-term TAIL support level of 14-15. With the VIX this low, you can expect the market to break down soon. The second indicator is the Bull/Bear Spread spiking back up to +1810bps wide to the bull side. Bears have been eviscerated from the spread, down to 25.5% vs 27.7% last week. A change is coming soon and the futures dropping well below that coveted 1400 level is key. If we drop below 1381, watch out for a bumpy ride.

THE NEXT WAVE OF REGULATION

There’s a problem going on in Britain right now – three to be exact. Standard Chartered is at risk of losing its New York banking license due to this Iranian money laundering scandal that broke this week, HSBC is dealing with a similar money laundering issue and Barclays is still wrangling with the LIBOR scandal. There’s now a rift being created between regulators and politicians in the United States and Great Britain. Expect further witch hunts down the road as we prepare to investigate one another’s banking institutions.

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ASSET ALLOCATION

 Cash:               DOWN                           U.S. Equities:    Flat

 Int'l Equities:   Flat                                Commodities:    Flat

 Fixed Income:  UP                                Int'l Currencies: Flat

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TOP LONG IDEAS

JACK IN THE BOX (JACK)

This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

FIFTH & PACIFIC COMPANIES (FNP)

The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG  

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THREE FOR THE ROAD

TWEET OF THE DAY

“@KeithMcCullough you guys killed it short side with $mcd $coh $rl, congrats” -@lipscrl

QUOTE OF THE DAY

“A lifetime is more than sufficiently long for people to get what there is of it wrong.” – Piet Hein

STAT OF THE DAY

Market expects Chinese corn production to rise Friday to 197-200mmt vs 195mmt last month.