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Moving Past The Noise

Client Talking Points

The Slowdown Continues

Corporate earnings continue to slow in addition to global growth. Moving into Q4, when companies report, expect a lot of misses. Any company that didn’t guide lower into the next quarter has to really prove they can beat the Street by a longshot. The market certainly has lost confidence in the ability of corporations to put up solid numbers, so testing 1300 on the S&P 500 soon isn’t some kind of crazy pipe dream. We can go a lot lower here so anyone screaming that stocks are “cheap” should realize that cheap can get a whole lot cheaper.

Political Dysfunction

President Obama meets with Congressional leaders today to kick off negotiations on the Fiscal Cliff. Obama won’t give wealthy Americans a break on taxes where as Republicans in the House want everyone to enjoy the benefits of a tax cut. Neither side is likely to budge, so you can imagine how well this will work out.

Asset Allocation

CASH 61% US EQUITIES 6%
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

“Romancing The Fiscal Cliff” -@JohnBiggs

QUOTE OF THE DAY

“If I had only known, I would have been a locksmith.” -Albert Einstein

STAT OF THE DAY

Hostress Brands, maker of the infamous Twinkie, will close its doors and lay off 18,500 employees. The end of an era.