The Game Of Risk

Client Talking Points

Play The Hand You’re Dealt

The market is very much like a poker game at a casino: you have to play the hand you’re dealt. Monday and Tuesday of this week, we bought US equities. Yesterday, we sold ‘em. Today, we’ll follow the risk and the range combined with our fundamental research to make a decision on what we’re going to do. This recent bull market is so driven to continue going up and to the right that the Chicago PMI numbers out today may not even make a dent in the SPX. It’s important to keep an eye on other asset classes, too.

 

If bonds and gold keep declining and stocks keep going up, we’ve got the growth the market is looking for. Throw in $130 a barrel oil and now you have a problem as global consumption growth stalls. It all revolves around The People of this great country. If gas prices are $6 a gallon and bread and milk cost $10 combined at the grocery store, they will not be going out and buying shoes, iPhones and other goods.

Housing Recovery

We continue to see recovery in the housing market with data point after data point coming out each week that signals that the recovery is underway. Inventory is falling, prices are going up, people are taking out mortgages and buying homes; things are good. This recovery may soon trickle over to the regional banks who are involved with housing. Hedgeye Financials Sector Head Josh Steiner put out a note on TCF Financial (TCB) yesterday summed up by this:

 

"TCB remains a favorite long idea of ours on an ongoing housing recovery which is just starting to have a powerful influence on fundamentals."

 

Asset Allocation

CASH 56% US EQUITIES 10%
INTL EQUITIES 10% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

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.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

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

“One theme I'm noticing in earnings this season... "performed well despite challenging times" has replaced hand-wringing.” -@HerbGreenberg

QUOTE OF THE DAY

“Physicists like to think that all you have to do is say, these are the conditions, now what happens next?” -Richard P. Feynman

STAT OF THE DAY

U.S. consumer spending rose 0.2% in December as incomes jumped 2.6%, most in eight years.


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