The Good Fight

Client Talking Points

Tax Battles

As we head into December, the number one issue for America’s political class is the Fiscal Cliff. We have about three weeks until we hit our federal spending limits; can Congress get its act together to come to a compromise that will fix everything without kicking the can down the road? We don’t recommend holding your breath. Both Democrats and Republicans are battling over taxes and if they can’t form an agreement, everyone in the country suffers as tax cuts expire. Simply put: it doesn’t look good.

Dollar Debauchery

Years of devaluing the US dollar has had a material effect on everyone. You see it when you pay $6 for gas in California and you see it when you go to the supermarket to buy groceries. Don’t like it? Tough. Thank the Federal Reserve for its Keynesian actions and constant quantitative easing. With the dollar under pressure recently, we’ve seen precious metals and wheat spike considerably with wheat futures contracts jumping +35% week-over-week alone. That’s not a laughing matter. Remember: get the dollar right and you get a lot of other things right.

Asset Allocation

CASH 58% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 9%
FIXED INCOME 21% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
YUM

New unit openings in China and strength in YRI and US should offset China weakness in 1H13. China SRS growth is sensitive to the economy but new unit growth and ROIIC are likely to be supported by continuing growth of the consuming class in China. Looking at operating income by geography for YUM/MCD/SBUX, we can see that YUM is the most geographically diverse. This is manifest in YUM’s more stable EPS growth and price performance over the last 10 years.

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

ASCA

We believe ASCA is greatly undervalued due to its potential to follow a OPCO/PROPCO model like PENN in two years or so. A high FCF yield and a healthy balance sheet make this gamer an attractive investment.

Three for the Road

TWEET OF THE DAY

“Sell on the news? Spanish 10 year bond up 5 points since Nov 20th near 105, +17 since July 20th, 5.16% yield” -@Convertbond

QUOTE OF THE DAY

“You can never underestimate the stupidity of the general public.” -Scott Adams

STAT OF THE DAY

Greece initiates a $13 billion bond buyback program to help stabilize its debts.


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