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QE: THE UNTHINKABLE

CLIENT TALKING POINTS

QE: THE UNTHINKABLE

It’s truly amazing what we witnessed yesterday. It’s clear the Federal Reserve can’t help the economy at this point. A cute short-term rally is what we’ll get from Ben Bernanke’s extension of 0% rates and MBS buybacks. After the rally? Higher fuel prices, higher food prices. No new jobs. Stagnant economy growth. Sounds great, doesn’t it? QE can save anything, anytime, right? 

GAS MONEY

Remember back when gas was $1 a gallon and you’d as your parents or friends for a couple bucks to fill up your tank so you could go out for the weekend? Those days are truly a relic of the past. We’re at an average of $4 a gallon gas right now and as if that weren’t bad enough, we’re going higher. As the S&P 500 climbs and as Ben Bernanke destroys the US dollar and juices commodity prices, we’ll no doubt see $5 gas, followed by $6 gas and so on. Aren’t central planner great?

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ASSET ALLOCATION

Cash:                Flat

U.S. Equities:   Up

Int'l Equities:   Flat   

Commodities: Flat

Fixed Income:  Down

Int'l Currencies: Flat  

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TOP LONG IDEAS

NIKE (NKE)

Nike’s challenges are well-telegraphed. But the reality is that its top line is extremely strong, and the Olympics has just given Nike all the ammo it needs to marry product with marketing and grow in the 10% range for the next 2 years. With margin pressures easing, and Cole Haan and Umbro soon to be divested, the model is getting more focused and profitable.

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

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • 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

“Insiders knew Bernanke was going to go all in; they'll live large this weekend while you take it in the pump” -@KeithMcCullough

QUOTE OF THE DAY

“There is no fate that cannot be surmounted by scorn.” –Albert Camus

STAT OF THE DAY

US Retail Sales increase by 0.9% for August.