BRENT UNDER PRESSURE
CLIENT TALKING POINTS
BRENT UNDER PRESSURE
Brent crude oil, the worldwide standard for crude, is ripping even higher today, touching $116 a barrel and not looking to stop anytime soon. Oil is up +32% since June thanks to inflation and geopolitical risk. This is great for producers of oil; bad for consumers of oil. Our Energy Analyst Kevin Kaiser had a nice quote that pretty much summed up the long case for crude oil. Allow us to share:
“Bull case for #oil is bailouts and bombs - not growth. $USO $OIL”
FADING AUGUST
The global macro picture at the moment is bleak and more importantly, it’s slow. What do we mean by slow? Volatility and volumes are virtually non-existent, everyone’s on vacation including the Eurocrats in the Eurozone and half of Wall Street (gotta milk that Hamptons timeshare for all it’s worth!) and no one knows what asset class they want to buy. Bonds? Stocks? Everything is essentially flat. Now that the S&P 500 is above 1400, expect it to trade in a tight range for some time.
Watching the market in real time is like watching an amateur ping pong game. It’s slow, uneventful and no one is keeping score.
CHINESE SLOWDOWN
Chinese growth has been slowing for the last year. People keep saying that China’s market is going to crash. Guess what – it has already crashed. Chinese equities get slaughtered on a weekly basis and the economic numbers coming out of China are painful to look at, knowing that they’re likely doctored. China’s Foreign Direct Investment (FDI) print this morning of -9% year-over-year is grim. How grim? Allow the Chinese Ministry of Commerce to lay it out for us:
“In the second half, China’s foreign trade and export situation will be more grim, there will be more difficulties, harder tasks, and the pressure of achieving the full-year target will be bigger…”
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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
“Moral: If you're going to steal, steal big .... and know people http://dealbook.nytimes.com/2012/08/15/no-criminal-case-is-likely-in-loss-at-mf-global/” -@HuffPeter
QUOTE OF THE DAY
“Not a shred of evidence exists in favor of the idea that life is serious.” – Brendan Gill
STAT OF THE DAY
The number of new housing permits rose by 6.8% to annualized level of 812,000 in July - highest number since August 2008.
