The Global Connection

Client Talking Points

Saving Europe

Europe is back in the spotlight, just in time to distract us from the mess in the United States known as the fiscal cliff. While the 10-year yields on various Eurozone countries are relatively low compared to levels we saw during the summer of this year, global growth continues to slow. France’s Industrial Production growth is down 1.1% for October after a -2.5% drop in September, Italy’s GDP growth is down -2.4% year-over-year for Q3 of 2012 and Japan’s GDP growth is down -3.5% quarter-over-quarter SAAR for Q3 of 2012. For anyone who thought things were peachy keen, think again. Factor in the fact that we’re two weeks away from hitting the debt ceiling and there’s plenty of cause for concern. 

Asset Allocation

CASH 52% US EQUITIES 12%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 18% 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.

FDX

Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road

TWEET OF THE DAY

“Your dad's "distribution model" is crumbling.” -@ReformedBroker

QUOTE OF THE DAY

“None but a coward dares to boast that he has never known fear.” -Ferdinand Foch

STAT OF THE DAY

McDonald’s saw a stronger-than-expected 2.4% rise in sales in November. Same  restaurant sales rose 1.4% in Europe, US sales at established restaurants rose 2.5%.


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