Three Big Themes

Client Talking Points

Three Big Themes

Now that we can put the political madness of the election behind us, let’s focus on our three macro themes for Q4 and beyond. We’re well into earnings season and our theme of #EarningsSlowing continues as company after company either misses Street expectations or lowers guidance. The commodity bubble given to us courtesy of the Fed is bursting at the seams with commodities down -9.3% since the Bernanke Top (September 14). Lastly, there is the fiscal cliff. It has been said that Republicans are reaching across the aisle and offering compromise on taxes in order to fix this mess, but more than likely, the two sides will bicker until the 11th hour and will kick the can down the road yet again. 

Market Breakdown

Yesterday’s big selloff can be attributed to the election results. Or the trouble in the Eurozone. Really, it can be blamed on anything. That’s how it works. If your strategy doesn’t work, just find someone or something to blame. It’s certainly worked out well for Old Wall. With the pop in the futures this morning, we’ll likely see some upside early on in trading; what really matters is the risk and the range. If you stick to your levels and trade within them, you’ll do just fine. That’s how proper risk management works as opposed to closing your eyes and throwing darts at sheets of paper with tickers written on them.

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 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

“scheduled a meeting at 3pm - people complained because lunch time is from 2 to 4pm#spainisdifferent” -@brilldisruptive

QUOTE OF THE DAY

“You must first have a lot of patience to learn to have patience.” -Stanislaw J. Lec

STAT OF THE DAY

US jobless claims fall by 8000 to 355,000


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