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Client Talking Points

The Keynesian Cliff

With each passing day, people become more obsessed and worried about the outcome of the Fiscal Cliff. Here at Hedgeye, we’re keen on calling it the Keynesian Cliff. The latest report from the CBO suggests a complete plunge over the cliff would have an estimated impact of $503 billion and $684 billion in FY13 and FY14, respectively. Ouch.

 

Since we have a better chance of the Dow hitting 20,000 than getting Republicans and Democrats to work together, it’ll be interesting to see what kind of solution America comes up with. Kicking the can down the road is not a reasonable solution. Debt downgrades, the elimination of tax cuts and spending cuts will be a painful thing to deal with when we face reality in the coming weeks.

Treasury Trove

Investors have been rushing back to US Treasuries since the election ended and the trend continues this morning. The 10-year is testing its August low of 1.58% and is quite capable of going lower should the market get “spooked.” We’ll have to wait and see if the 1364 level holds on the S&P 500 today; that’ll be the arbiter of things to come.

Asset Allocation

CASH 55% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 6%
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

“ML's November Fund Manager Survey is out and notes that HF net exposure to equities of 40% is at its highest level since June 2007” -@HedgeyeDJ

QUOTE OF THE DAY

“To be willing to die for an idea is to set a rather high price on conjecture.” -Anatole France

STAT OF THE DAY

Chinese stocks -16.8% since #GrowthSlowing started, globally, in March.