Flying High Again

Client Talking Points

Growth Stabilizing

Last week, we saw stocks soar with the Russell 2000 hitting a new all-time high and the S&P 500 returning to levels not seen since 2007 right before the financial crisis. With our S&P sector multi-duration model flashing bullish signals across the board, it’s clear that growth stabilizing is here and could eventually morph into true growth. Bonds got smoked and the yield on the 10-year remains elevated. Gold is making a recovery this morning, but only after getting rocked last week. There are a lot of people who are still long gold and are hurting after the past month. We’re still bearish on commodities and that won’t change unless the Fed starts making moves.

Gimme A Buck

The correlation risk related to the US dollar should be considered when investing around the political class. For now, the dollar has stopped going down and thus, commodities have stopped inflating. That can change quickly if Congress makes a move that hurts our currency. Remember our adage: get the dollar right and you get a lot of other things right.

Asset Allocation

CASH 49% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
NKE

Our competitors are neutral to bearish on the name ahead of earnings, but we think they’re missing the bigger picture. We think concerns over the shoe cycle rolling over are overdone. With R&D in the mid-teens, NKE has the ability to drive the ‘sneaker cycle’ in a case of “the tail wagging the dog”. We also think $NKE is a candidate for releasing a special dividend when they report EPS next week.

ADM

ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.

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

“Basel move, watershed moment for the banks, 25 years from now bank capital requirements will be tied to GDP, stronger economy = more capital” -@Convertbond

QUOTE OF THE DAY

“The absence of alternatives clears the mind marvelously.” -Henry Kissinger

STAT OF THE DAY

Bank of America Corp said it will pay $3.6 billion to Fannie Mae to settle claims related to residential mortgage loans for the nine years to the end of 2008.


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