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CHINESE SURPRISE

CLIENT TALKING POINTS

CHINESE SURPRISE

Economic data from China has a lot in common with a fortune cookie: you never know what you’re going to get. China reported 7.4% GDP for Q3 and didn’t surprise on the upside. So far, this GDP number shows a slowdown when compared quarter-over-quarter and year-over-year. While the mainstream media believes that China’s slowdown has “bottomed,” the truth is that we are far from over with this mess. The slowdown will continue on and Chinese stocks can and will continue to get crushed.

COMMODITIES CORNER

In the US, you can get commodities right if you get the US dollar right. It’s a pretty simple correlation game that traders and investors play. When you look at China, you need to factor in supply and demand as well. Demand is very “toppy” right now for a lot of commodities and it’s not like China is going to have a second housing boom to drive demand for raw materials again. As we stated above, there’s still plenty of room for downside.

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ASSET ALLOCATION

Cash:                UP

U.S. Equities:   DOWN

Int'l Equities:   DOWN   

Commodities: DOWN

Fixed Income:  Flat

Int'l Currencies: UP  

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TOP LONG IDEAS

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • 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

HCA HOLDINGS (HCA)

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

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

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THREE FOR THE ROAD

TWEET OF THE DAY

“Sell side previews of UA quarter seem to be coming out uniformly bullish.” -@HedgeyeRetail

QUOTE OF THE DAY

“There's a fine line between genius and insanity. I have erased this line.” -Oscar Levant

STAT OF THE DAY

Morgan Stanley reports a net loss of $1 billion for Q3.