Client Talking Points
The market moves quickly and you have to be prepared to deal with it. We noted that the 1364 line of support for the S&P 500 was a critical level to watch yesterday. It broke and took the market down to 1355. Right now, there is no intermediate-term TREND support to 1258; keep that in mind because the market is looking more grim day after day. Traders are keen to fade any sort of rally and if we go down any further and approach 1300, we’ll have quite the mess on our hands.
Who's To Blame?
You can blame the sell off on a number of things, but the focal point of the market seems to be the Fiscal Cliff. Hedgeye Financials Sector Head Josh Steiner pointed out yesterday that he estimates we will hit the debt ceiling top within 35 days. With the way our politicians act, any chance of compromise on the issue seems unlikely. It’ll be interesting to see what happens come December.
Best Ideas Call
A friendly reminder that Hedgeye will be hosting our bi-annual BEST IDEAS CALL today. We will be outlining the top investment ideas, both long and short, across each vertical of our world-class research team. In aggregate, we will offer one high conviction and differentiated investment idea from each of our 8 verticals over the intermediate term duration.
If you're interested, please get in touch with us. Risk Manager subscribers enjoy access to the call; see our sign up page for more information.
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Top Long Ideas
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.
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.
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
"Remember - if oil goes up on geopolitical risk, like Israel/Palestine, you do NOT want to be in energy stocks. Cost of capital goes way up" -HedgeyeEnergy
QUOTE OF THE DAY
“The belief in a supernatural source of evil is not necessary; men alone are quite capable of every wickedness.” -Joseph Conrad
STAT OF THE DAY
Foreclosure activity rose 3% in October on a month-over-month basis but is down 19% year-over-year.