The Big Slowdown

Client Talking Points

The Big Slowdown

The global slowdown of growth and earnings is entering its next phase after last week’s selloff in the the US (down -2.5%), China (down -2.3%) and elsewhere. As corporations continue to miss and guide lower on earnings, we’re beginning to realize that it’s looking a lot like 2007 all over again and that’s not very pleasant for the mind. We went through the tech bubble in 2001, the housing/credit bubble in 2007 and now we’re experiencing the commodity bubble caused by our friends at the Federal Reserve. This is something that can’t be avoided no matter what is laid out in the monstrosity known as the Dodd-Frank Act. Keep your eyes focused on the US dollar in particular because if you get the dollar right, you get a lot of other things right.

Asset Allocation

CASH 58% US EQUITIES 9%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 18% 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.

IGT

There is improving visibility on 20%+ EPS growth with P/E of only 11x with better content leading to market share gains. New orders from Canada and IL should be a catalyst. Additionally, many people in the investment community are out in Las Vegas at the annual slot show (G2E) and should hear upbeat presentations by management.

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

“The next Presidential election will materially be held inside the Democrat primary. Time for Rubio and others to become Democrats.” -@daytrend

QUOTE OF THE DAY

“People that are really very weird can get into sensitive positions and have a tremendous impact on history.” -Dan Quayle

STAT OF THE DAY

Leucadia buying Jefferies for $17.60 a share in stock deal worth roughly $3.7 billion.


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