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Client Talking Points

The Reelection

Looks like our Hedgeye Election Indicator (HEI) was correct. Our final reading on Monday put President Obama’s chances of reelection at 62.5%. Sure enough, Obama narrowly won the election last night much to the chagrin of the Romney camp. People have lots of questions about what the future now holds and rightfully so. How will the fiscal cliff situation play out? Will Republicans in the House hold the economy hostage over the debt ceiling? What will happen to Geithner and Bernanke? Over the next six months, we’ll have more clarity on the aforementioned situations.

Obama's Market

Obama continuing on as President for another four years will materially affect certain markets. For instance, we believed that a Romney win would have been bullish for the US dollar and bearish for commodities. He also vowed to replace Ben Bernanke as chairman of the Federal Reserve. Now we wait and see if Bernanke will stay put and whether or not the President has any intention of strengthening our currency. People are fed up with higher gas prices (especially after Hurricane Sandy) and food prices. Can the President quell the public outcry or will he stay the course he’s laid out over the last four years? We shall see.

Asset Allocation

CASH 58% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 12%

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 enjoys 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

“if we go over fiscal cliff--everyone in stream gets [a] pony” -@fearlicious

 

QUOTE OF THE DAY

“Money is better than poverty, if only for financial reasons.” -Woody Allen

STAT OF THE DAY

Electoral Vote Count: Obama: 303 / Romney: 206