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Client Talking Points

CHINA

Boom! An outright awful session for Asian equities overnight. The Shanghai Composite plunges -5.3% moving toward waterfall crash mode (down -19.3% since Feb 5, 2013)A massive PR effort is officially on by the People's Bank of China now that everything you can monitor from a market perspective is going absolutely haywire. (Yes - we were well ahead of consensus on this call.) If you’d like our bearish #EmergingOutflows and China slide decks, please ping us.

COPPER

The Doctor is in the emergency this morning as #BernankeBubbles continue to get crushed. Copper snaps $3.00/lb for the 1st time in 2013. It's down -3.4% this morning and down -18.1% YTD. Meanwhile, Gold and Silver continue to crash down -1-2% after being down hard last week. #CommodityDeflation anyone?

UST 10YR

It’s all about the VELOCITY – the water’s VOLUME (global leverage to sovereign debt) was never in doubt. Pardon our metaphor, but this is the best one we can find to explain the thermodynamic nature of markets as they approach their point of entropy, then crash. That bifurcation point in our model was 2.41% on the 10yr; 2.60% last.

Asset Allocation

CASH 61% US EQUITIES 13%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 20%

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

Whoever said buy Gold and Treasuries for the last 6 months = dead wrong #Macro

@KeithMcCullough

QUOTE OF THE DAY

"The best way to destroy the capitalist system is to debauch the currency."

- Vladimir Lenin
 

STAT OF THE DAY

The Shanghai Composite suffered its worst one-day percentage loss in nearly four years, plunging 5.3% to end at 1,963.24 — its first close below the psychologically-important 2,000-point level since December.