Signals from Oil and China

Client Talking Points

Oil and the Dollar

If you want to get freaked out about something, keep a close eye on oil, not at something inconsequential like Cyprus. In fact, Cyprus might even be the biggest pretend crisis in a decade. Right now, according to our models, the price of Brent crude is nearly perfectly inversely correlated to the US dollar. That means if the US dollar moves higher, oil prices move lower. Look at Brent oil’s price since February 1 – it’s been declining.

China Calling

Oil and China are the two most bullish items from a global macro perspective this week, and they’re interconnected. The Shanghai composite index closed higher for the third consecutive day, thanks in part to lower oil -- as money is flowing out of places like Cyprus and back to the US and elsewhere.

Asset Allocation

CASH 41% US EQUITIES 20%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
DRI

Darden stands to be a beneficiary from a housing recovery and an improved employment picture, which boosts casual dining trends. Darden reported earnings today that beat Wall Street expectations, though net income declined 18%.

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.

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.

Three for the Road

TWEET OF THE DAY

“Roll forward and stay current but keep those durations short.” -- @CAMLLCCIO

 

QUOTE OF THE DAY

“Reality is merely an illusion, albeit a very persistent one.” – Albert Einstein

STAT OF THE DAY

1, the number of games Harvard has now won in its history in the NCAA basketball tournament following last night’s win over New Mexico.


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