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Bottoms Up

Client Talking Points

Corn Collapsing

As growth continues to stabilize, we’ll be keeping a close eye on crude oil. It’s the one commodity that isn’t crashing or falling hard and the one commodity that can bring us right back into #GrowthSlowing. Meanwhile, corn is making a lower-low this morning and gold is failing at its TAIL risk line of $1671. Those gold bugs out there, from hedge funds to grandparents, are in for a rude awakening this morning. At this point, they should be used to it.

 

The Three Risketeers

Keith was on CNBC’s Fast Money yesterday afternoon and discussed his “Top 3 Risks” for the market: 

 

1.       #EarningsSlowing

2.       Rising Oil Prices

3.       Japanese Policy

 

As we kick off another quarter of earnings, risk number one is worth watching. Just because Alcoa (AA) didn't bomb doesn't mean it's smooth sailing ahead. We’ve discussed the implications of higher oil prices in the note above, so that leaves us with Japan. You have Japan following the US in terms of monetary policy (burn the yen) and itching to buy European bonds. It’s truly scary what the Japanese are doing to the economy. These three risks should have every investor questioning their next move in the market.

Asset Allocation

CASH 43% US EQUITIES 21%
INTL EQUITIES 21% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

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

“@Hedgeye @CNBC I've been trying to trade on my own for 20 yrs. I never made any real money until I got real time alerts w/@KeithMcCullough.” -@TeaCardman

QUOTE OF THE DAY

“Lying increases the creative faculties, expands the ego, and lessens the frictions of social contacts.” -Clare Booth Luce

STAT OF THE DAY

Mortgage application volume bounced back 10.0% (purchase) in the week ended January 4th, after tumbling 14.8% in the last two weeks of December according to the Mortgage Bankers Association.