The Political Machine

Client Talking Points

The Political Machine

With the election taking place tomorrow, the candidates are pulling out all the stops and sparing no expense trying to appeal to independent and undecided voters today. It appears that Mitt Romney has taken the lead by an ever-so-slight margin, but really, this election is too close to call. It’s important to remember that the outcome of this election will weigh strongly on the markets. Romney will be US Dollar bullish and thus bearish on commodities. He’s also said he’ll get rid of Bernanke. If Obama wins, Bernanke is likely to keep his job and thus, we’ll have more of the same quantitative shenanigans and low interest rates for the next four years.

Focus On The Dollar

So with Romney ticking ahead, it makes sense that the US Dollar Index was up +0.65% last week. The index has had one down week over the last seven and is breaking out from an immediate-term TRADE perspective. Dollar up, commodities down. Remember that if you get the dollar right, you tend to get a lot of other things right. Be sure to watch the outcome of the election tomorrow because it’ll definitely affect your trading on Wednesday.

Asset Allocation

CASH 55% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
TCB

After a long downward slide, TCB has finally turned the corner. The margin has stabilized after the balance sheet restructuring. Loans are growing thanks to the equipment finance business. Non-interest income is more likely to go up than down going forward, a reversal from the past 18 months. Credit quality has a tailwind from a distressed housing recovery in TCB’s core markets: Minneapolis, Detroit and Chicago. On top of this, the CEO, Bill Cooper, is one of the oldest regional bank CEOs, which raises the probability that the bank will be sold. Expectations are bombed out at this point, so we think it’s time to move from bearish to bullish on TCB.

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.

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.

Three for the Road

TWEET OF THE DAY

“‘During a campaign the air is full of speeches - and vice versa.’ ~ Author Unknown” -@jackstone104

QUOTE OF THE DAY

“Nothing is as simple as we hope it will be.” -Jim Horning

STAT OF THE DAY

Mitt Romney takes the lead on Rasmussen, 49-48%, on the day before the election.


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