Client Talking Points
Away from Japan, the bounce wasn’t even a bounce – Weimar Nikkei +1.66%, but still closed inside of my 13,696 TREND line of resistance. The rest of Asia acted horribly. KOSPI -1.5% is clean cut broken and the more EM looking indices (Indonesia, Philippines) down -1.6 and -2.3%. Asian #GrowthSlowing happening here at an accelerating rate #EmergingOutflows.
The only good news this week? The US Dollar Index has recovered TREND support of $81.11. (The upside down of that is YEN back over 96.18 TREND support vs USD). Bottom line: If there’s one quote - just one - that I was allowed to get live in a dark room to make decisions, this one would be it. It’s been triggering everything else. #CorrelationRisk
After banging the top end of my immediate-term 2.24-2.46% risk range yesterday, the 10-year yield backs off to 2.38% here. But this thing is a beast. 0% asset allocation to Treasuries is the obvious call. Where to re-short bonds will be an important exercise here on the bounce today too.
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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
"The truth is, I've never fooled anyone. I've let men sometimes fool themselves" - Marilyn Monroe
STAT OF THE DAY
Among smartphone owners age 18-44, making phone calls accounts for only 16% of the total time spent with their devices, whereas the remaining 84% of time is spent texting and interacting with email and social networks. (Source:Marketingprofs)