CLIENT TALKING POINTS
Getting It Right
It’s not about being bullish or bearish in the market; it’s about getting a trade right. After all, if you’re losing money, you’re obviously doing something wrong. Investors like to fight the market but in reality, they should go with the flow of the market and trade alongside it. For instance, we now see the S&P 500 is above our TREND line of resistance of 1419. That’s a bullish signal for us unless it sells off below 1419 and closes there - then it’s a bearish signal. We play the game as it was meant to be played and do things right here at Hedgeye.
Commodity Corner
Commodity deflation continues to take center stage with the CRB Commodities Index down on the week and down -8.7% since the Bernanke Top (September 14). Oil continues its bearish formation on all three of our durations: TRADE, TREND and TAIL. Essentially, the big ol’ rally commodities experienced after multiple rounds of quantitative easing is coming to an end.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 49% | US EQUITIES | 15% | |
| INTL EQUITIES | 9% | COMMODITIES | 0% | |
| FIXED INCOME | 15% | INTL CURRENCIES | 12% |
THREE FOR THE ROAD
TWEET OF THE DAY
“I love Gundlach, but I've heard the short yen trade for a while. I agree BOJ and Japanese govt likely to get more aggressive, but how much?” -@Commodity_Bull
QUOTE OF THE DAY
“It is a far, far better thing to have a firm anchor in nonsense than to put out on the troubled sea of thought.” -John Kenneth Galbraith
STAT OF THE DAY
MBA purchase applications up another +0.7% week-over-week.