Switching It Up

Client Talking Points

Ebb And Flow

The markets can move any which way they please, regardless of what participants think it should do. Right now, we’ve been enjoying (so to speak) a move from #GrowthSlowing to #GrowthStabilizing. Commodities continue to deflate, equities are on the rise and housing is recovering. There is a caveat: crude oil. It’s been going up in price since December and if we go back to $120 a barrel oil, that can take us right back to #GrowthSlowing. Oil is an important indicator of growth in our model, so we'll be watching it closely to see which direction it heads over the next week.

Bad Bonds, Bad Bonds

COPS-theme song aside, bonds have had one hell of a bad start this year. Treasuries in particular haven’t had a start this bad since 2009. The 10-year risk range for today is 1.84-1.96% and is currently trading at 1.885% as of writing. A 200bps yield is a stone’s throw away. Investors are worried that the Fed will stop buying debt this year but it remains to be seen if that’s merely gossip or hard fact.  As Congress works with the Treasury to raise the debt ceiling, the yield on the 10-year looks to keep climbing.

Asset Allocation

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

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

“Easier for the #PoliticalClass to talk political economy instead of real-time business - easier to just make stuff up” -@KeithMcCullough

QUOTE OF THE DAY

“If absolute power corrupts absolutely, does absolute powerlessness make you pure?” -Harry Shearer

STAT OF THE DAY

ICSC/GS weekly chain store sales w/e Jan 6th w/w: -4.2%; y/y: +4.0%