UGLY GLOBAL MACRO MORNING

Client Talking Points

ASIA

Overnight the Yen rips +1.6%, while the Weimar Nikkei falls -1.5%. We actually covered our Yen (vs USD) short yesterday on our signal as the risk range for USD/YEN just shifted to 96.05-99.55. It should be manageable now, but the meltdown in the rest of Asian Equities might not be. Check out all the red: Thailand -4.7%, Philippines -4.6%, Indonesia -4% as both the KOSPI and HangSeng remain below both our TRADE and TREND lines.

GREECE

Hello Greece. It's been a while. Welcome back to the matrix. Greek stocks -3.6% this morning after getting smoked yesterday and now move swiftly back into full-blown crash mode (Athex -21% since May 17th). What does it mean? Illiquidity in global equity markets is for sale here, big time (especially in emerging markets).

UST 10YR

Both illiquid securities designed to chase yield and Gold absolutely hate bond yields rising like this. This morning’s most important macro move is the 10yr ripping an overbought signal up at 2.26%. Above 2.41% starts driving the convexity function in my model (which leads to higher-levels of volatility). The next 15bps (up or down) really matters here.

Asset Allocation

CASH 30% US EQUITIES 25%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 25%

Top Long Ideas

Company Ticker Sector Duration
NSM

Financials sector head Josh Steiner is the Street’s head bull on residential mortgage originator/servicer Nationstar, projecting $9 in earnings for the company in 2014.  This is well above the company’s own guidance range, which tops out at around $7.50.  NSM had a successful start to the year as it won servicing bids on substantial mortgage portfolios.  They also reported significant increases in their profit margins on those portfolios, and double-digit increases in their own originations.  Housing prices are ramping significantly higher, as Steiner predicted, as demand continues to exceed supply in both new and existing homes.  Steiner says this quality mortgage company could ride the crest of a sustained wave of sector improvement.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016.  

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

Three for the Road

TWEET OF THE DAY

Central planners who think they can "smooth" economic gravity will lose control, in the end

@KeithMcCullough

QUOTE OF THE DAY

“Success seems to be connected with action. Successful people keep moving. They make mistakes,but they don’t quit.”

- Conrad Hilton

STAT OF THE DAY

$7 billion: The amount of money Citigroup stands to lose if the dollar gains against the yen, euro and currencies in emerging markets, which provide about half the firm’s profit. (Bloomberg)