Client Talking Points
What an ugly start to the week in Asia. Asian Equities were led lower by Indonesia which fell -3.2%. Meanwhile, China was down -2.4% and Hang Seng down -1.3%. Get this: the Shanghai Compositie is down -11.7% year-to-date. No, that's not pretty. With the exception of Japan, every single Asian country is bearish TREND right now. (Nikkei TREND = 13,668)
Yes, European stocks are having an aggressive bounce. However, this is happening on A) no volume and B) not one of these markets is above any of my TREND lines of resistance. The most important TREND line to watch is DAX 8062. That is key. Meanwhile, EUR/USD couldn’t care less about the Troika “news.”
What's the biggest threat to the US Consumption investment theme? That would be Brent Oil closing and holding above the long-term TAIL risk line of $108.36. We're backing off -0.6% this morning toward $107. That is a good thing. We are watching this one very closely.
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Top Long Ideas
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.
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.
Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward. Near-term market mayhem should not hamper this trend, even if it means slightly higher borrowing costs for hospitals down the road.
Three for the Road
QUOTE OF THE DAY
"People who lose money always need someone to blame."
- Jim Chanos
STAT OF THE DAY
On this day (July 8) in 1932 – The Dow Jones Industrial Average reaches its lowest level of the Great Depression, closing at 41.22.