CLIENT TALKING POINTS
The No Volume Rally
Despite volume being down -21% yesterday versus the November average, stocks decided it was time to load up on steroids and rip to the upside with the S&P 500 blowing past our TAIL line of support at 1364 and closing at 1386. A reminder that our risk range is 1 with the latter number being a real test of confidence for the market. We’re still down -6% from the Bernanke Top (aka September 14 YTD high) so you could consider yesterday to be a short squeeze or whatever buzzword floats your boat. The truth of the matter is that our three top macro themes remain intact: Earnings are slowing, the commodity bubble is popping and the Keynesian Cliff remains a problem that has yet to be addressed properly.
Major Meltdown
Our #EarningsSlowing theme has really been a focal point for the market over the last month. We’ve seen big boys like FedEx (FDX) and Caterpillar (CAT) guide down and plenty of misses versus Street consensus. #OldWall thinks that things really aren’t all that bad and yet each day, we get bad news or data that you think would make them change their mind. After last week’s selling, you can’t help but wonder what the people who said that stocks were “cheap” were thinking.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 52% | US EQUITIES | 6% | |
| INTL EQUITIES | 0% | COMMODITIES | 6% | |
| FIXED INCOME | 21% | INTL CURRENCIES | 15% |
THREE FOR THE ROAD
TWEET OF THE DAY
“I like how Meg Whitman is blaming "fraud" on the disastrous Autonomy acquisition. More like complete $HPQ board & management incompetence” -@Contrahour
QUOTE OF THE DAY
“Skeptical scrutiny is the means, in both science and religion, by which deep insights can be winnowed from deep nonsense.” -Carl Sagan
STAT OF THE DAY
China Foreign Direct Investment (FDI) remains down -3.5% year-over-year through October.