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Quit Chasing Beta

CLIENT TALKING POINTS

CHINA’S INFLATION

These days, when a leading economic indicator comes out of China, you have to approach any number with a bit of caution. China saw its July inflation rise +1.8% year-over-year, more than the consensus expectation of +1.7%.Considering that the Chinese are still experiencing pain at the pump, this number is likely to be revised at some random point in time. As for the media, they hopped all over this number, declaring it an arbiter for a bailout. As a result (get your golf claps ready), stocks are up +0.6%.

In May, not only Chinese growth, but global growth really started to accelerate on the downside. That’s why almost every major stock market in the world stopped going up in March-April. Markets discount future events.

FOLLOW THE PLAN

“It’s all part of the plan,” a wise man once said. We’re inclined to reason that if you’re trading these markets, you’ve got a plan. For us, it’s about using the range and the numbers. We are not chasing beta like a couple kids running after an ice cream truck. That’s how you get smoked.

Jesse Jackson really wasn’t kidding when he said to “keep hope alive” - that’s exactly what market participants are doing right now. The bulls are trying to do all they can to save this 1400 S&P 500 level alive. Have fun with that. We’re moving into fixed-income via Treasuries. Our next move is to get long the US Dollar when the timing and price is right.

PAY ATTENTION

We’ve got our levels and our durations. We use this process, along with consideration for time and price, to make trading decisions. Seeing as how we’re in an election year, this is what we have ahead of us. It should sound familiar to you at this point:

A)                  The long-term (TAIL) of lower-highs on lower volume (bearish)

B)                   The immediate-term (TRADE) short squeeze (bullish)

C)                   The ongoing hope that bailouts will earn everyone a year-end bonus sticker

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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

LAS VEGAS SANDS (LVS)

LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

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

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THREE FOR THE ROAD

TWEET OF THE DAY

“JPM SEES UP TO $5.3B 'REASONABLY POSSIBLE' LEGAL LOSSES, HAD SEEN POSSIBLE BUYBACK LOSSES UP TO $2B 3 MONTHS EARLIER” -@zerohedge

QUOTE OF THE DAY

“A lie told often enough becomes the truth.” – Vladimir Lenin

STAT OF THE DAY

Greece Unemployment Rate 23.1% MAY vs 22.5% APR