Client Talking Points
#EmergingOutflows ... Yes, our Q2 Global Macro Theme continues to ring the bell in both Brazil and China this morning. Brazil’s Bovespa dropped below 50,000 yesterday. It is now in crash mode (It's down -22.5% since January 3). The biggest protests in 20 years are sweeping the Brazilian streets. Foreign Direct Investment to China slows to nothing year over year in May. #InterconnectedTradingPartners
Brent is toying with my emotions here. TREND line = $106.22 and TAIL resistance = $108.54/barrel. Question du jour. Will Ben Bernanke reflate oil on another Down Dollar move or not? #Syria still remains an obvious issue. As for Putin and Obama? No, they didn’t do beers and hockey last night.
Another big move in the 10yr UST yield yesterday is keeping bond bulls under siege. For all you home gamers out there, that's seven weeks and counting now. If Bernanke was operating independently (he's not – Obama called him a “great partner” last night), he’d taper. US employment, housing, and consumption data (aka #GrowthAccelerating) all support that. Gold and Bonds? Yes they agree. Avoid them both.
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Top Long Ideas
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.
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 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
QUOTE OF THE DAY
"If everyone knows you're going to print money ... you know ... welcome to Zimbabwe."
- Jim Chanos
STAT OF THE DAY
$3,410,000,000,000: The Fed’s assets now total $3.41 trillion compared with $877 billion at the end of August 2007.