Capital Flow Beneficiaries...

Client Talking Points

JAPAN

Yen Down, Nikkei Up.  Welcome to the New Month, same as the Old Month.  Big +2.5% move to the upside for the Japanese stock market to kick off August.  The Yen failed at our TREND line of 97.41 resistance (vs USD) as the Nikkei held our TREND support level of 13,421.  From a quantitative perspective, holding TREND support is a key #Bullish signal for Japanese equities and, from a strategy perspective, we continue to like deep, liquid markets as capital recipients.    

U.K.

Ahhh, remember the good ole day’s of the late 19th century when the U.K. accounted ~10% of World GDP!  Don’t look now but the U.K. is starting to string together solid sequential economic data.  This morning’s 54.6 PMI print for July (vs 52.5 last mth) was the best global macro data point of the morning and the FTSE is looking increasingly better on the long side  – alongside the U.S. and Japan, the U.K. sits as our other favored, liquid market, capital flow beneficiary.

UST 10YR

Up, Down, Up.  Despite the daily oscillations, the trend remains higher as  yields continue to make higher-lows on pullbacks and probe higher-highs on the rips.  The current yield of 2.60% = +4bps w/w, +12bps m/m, +107bps y/y.  #RatesRising, particularly a first step function move higher towards interest rate normalcy, is not the enemy of growth or equity performance.  

Asset Allocation

CASH 36% US EQUITIES 25%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

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

Government requests for Twitter users' data on the rise http://reut.rs/15dsuLw 

@KeithMcCullough

 

 

QUOTE OF THE DAY

Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible.”

- John Maynard Keynes

STAT OF THE DAY

The Eurozone PMI Manufacturing number for July increased to 50.3 (exp. 50.1) from 48.8 in June, this is the first expansionary reading since July 2011.