Front Running

Client Talking Points

Higher Yields

You’ve got to keep in mind that #GrowthStabilizing = good for stocks, bad for bonds and gold. In turn, yields on the 10-year Treasury hit higher highs this morning, with 2.01% acting as immediate-term TRADE resistance. There’s no intermediate-term resistance up to 2.41% and with employment, housing and labor markets cranking out positive data points week-after-week, higher yields are certainly possible. Fund flows are moving out of bonds and Treasuries and into equities as they chase they stock market.

Beat The Machines

A lot of investors and traders like to complain about “the machines” (aka the algos, the robots) taking control of the market and beating people at their own game. Well if you can’t join ‘em, beat ‘em. If you stick to a plan that works, you can front run the algos and stay one step ahead in this game called “the market.” We use our multi-duration (TRADE, TREND, TAIL), price/volume/volatility model to tell us what the machines are chasing and that way, we don’t have to worry about what some bank’s buy algo is doing because we’ve done the math and the homework. Right now, it’s sexy to be in names that have high short interest, high beta and high debt/EV. The market may seem toppy but there’s room to grow; just keep in mind that our S&P 500 line of TRADE support is at 1488. That’s the magic number.

Asset Allocation

CASH 46% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

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.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

“bulls looking for another leg higher in equities. Bears praying for a rollover. FOMC tomorrow - perfect” -@allstarcharts

QUOTE OF THE DAY

“Eccentricity is not, as dull people would have us believe, a form of madness. It is often a kind of innocent pride, and the man of genius and the aristocrat are frequently regarded as eccentrics because genius and aristocrat are entirely unafraid of and uninfluenced by the opinions and vagaries of the crowd.” -Edith Sitwell

STAT OF THE DAY

Case-Shiller 20-city home-price index up 5.5% year-over-year