Behold the US Bull

Client Talking Points

S&P500

Bears are not sleeping well. US stocks notching new all time-highs. (All-time is a long time.) S&P 500 up +18.4% year-to-date. Russell up even more +23.7% year-to-date. It's the seventh consecutive day where all 9 Sectors in our Hedgeye S&P Sector risk model are bullish on both TRADE (3 weeks or less) and TREND (3 months or more) durations. In other words, even the sectors we don't like like Utilities (XLU) and Basic Materials (XLB) aren't shortable, yet. Immediate-term Risk Range for SPX is 1670 - 1701. Bottom line? Buy US Stocks on red; Sell Treasuries on green – rinse and repeat.

ASIA

It's still Japan (bullish) vs China (bearish). Nikkei was down -1.5% overnight to 14,589. But it did hold our 14,448 line of support. Japan was down for the first day in five. We are keeping a close eye on the Nikkei. It's getting interesting there. Meanwhile, Chinese stocks continued to get rocked. China is down 3.7% in the last 3 days. Beijing is a certified gong show right now; its not where you want to be putting your capital. Liquidity trap anyone?

Asset Allocation

CASH 51% US EQUITIES 18%
INTL EQUITIES 9% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
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.

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. 

HCA

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

TWEET OF THE DAY

US Equity Fund Flows (ex-ETFs) ripped the perma 2013 bears another new one last wk, +$3.7B inflows w/w

@KeithMcCullough

QUOTE OF THE DAY

“Detroit has been working its way to a level of insolvency for decades, continuing to borrow, continuing to defer pension payments, continuing not to pay its bills on time, continuing a deepening insolvency -- $18 billion.” - Kevyn Orr, Detroit's emergency manager (Bloomberg)

STAT OF THE DAY

The AAA daily tracking of gas prices rose another penny Thursday to $3.66 for a gallon of self-serve regular, the 11th straight day of rising prices. Gas is up nearly 20 cents a gallon, or about 6%, during that period. (CNN)

 


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