It's Getting Dicey...

Client Talking Points

YEN

The most important correlation risk in my entire Global Macro matrix would be a sustained breakdown in the USD/YEN cross below 95.85. The market is testing those waters now, so I’d just as soon as get out of the way and let the market tell me what’s next. The flow to up/down Weimar Nikkei, then translation to S&P Futures is getting gnarly too.

CAC

La Belle Province? It doesn’t look so pretty anymore. Next to Russia, France is now the 1st major European Equity market to snap my intermediate-term TREND line of 3889. We did a 90-slide presentation on European Risks yesterday. Ping us if you missed it. Our research view is quite bearish on France, and now the signal confirms.

2YR UST

I spend most of the time talking about the breakout in the long-end of the curve, but the short-end (which Bernanke has marked to model) is starting to move now. At 0.32% this morning 2s are A) above my 0.27% TAIL risk line and B) Up +9bps in the last month. Yes, that’s a monster 39% move and while low nominally, in my model it's more about slope and the rate of change.

Asset Allocation

CASH 35% US EQUITIES 17%
INTL EQUITIES 17% COMMODITIES 0%
FIXED INCOME 6% 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

I really do think @KeithMcCullough has some inside info on how thousands of other traders trade. No way he can call $SPY the way he does w/o

@DallasTexxxas

QUOTE OF THE DAY

"I am not remotely interested in just being good."

- Vince Lombardi

STAT OF THE DAY

According to the latest data published by Amazon, sales of George Orwell's '1984' have spiked 3,100% over the past 24 hours, following fresh reports about the NSA's surveillance programs and the 29-year-old Booz Allen Hamilton employee, Edward Snowden, who leaked them. (The Atlantic)


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