Don't Go Chasing Waterfalls

Client Talking Points

#StrongDollar

An epic 48 hours. Witness the huge move in the US Dollar. The levels in our Hegeye model matter folks. Big time. The USD Index TREND line recaptures (= $81.21) as the Yen (vs USD) TREND line snapped ... fast (96.17). Everything else we call our "Waterfall" model of globally interconnected risk followed that along with ripping 10yr UST rates. Getting the dollar right matters.

GOLD

Ka-boom! Gold is officially crashing again (down -3.5% this morning and -22.2% YTD). Why? Gold hates US growth expectations rising and the rising bond yields that have been front-running the Bernanke Fed. This morning’s move isn’t new – it’s called capitulation. Meanwhile, oil failing at our $106.22 TREND line is good news for consumption – won’t matter for US stocks until we re-test 1605-1610 support.

#EmergingOutflows

It's official. The least obvious short call in 2013 Macro is becoming much more obvious now that every Asian and Latin American Equity Index has snapped our intermediate-term TREND line. Russia and Brazil? Now down -16% and -22% YTD, respectively. #Pain. Let us know if you want to review our #EmergingOutflows slide deck from a few months back. We called this.

Asset Allocation

CASH 51% US EQUITIES 19%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

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

Hedgeye Risk Management reiterates its 6mth old call to have 0% of your assets in Commodities and/or Fixed Income

@KeithMcCullough

QUOTE OF THE DAY

A real decision is measured by the fact that you've taken a new action. If there's no action, you haven't truly decided.
- Tony Robbins

STAT OF THE DAY

On August 18, 1913, on an unbiased roulette wheel at Monte Carlo, evens came up 26 times in a row. The probability of this occurring is 1 in 136,823,184. 


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