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Client Talking Points

JAPAN

The Nikkei got royally crushed for a -4% move overnight after the Yen rallied versus the US Dollar. Incidentally, the Bank of Japan is meeting tomorrow, and I generally assume that someone, somewhere, always knows something in terms of government front-running. We shall see. No position in DXJ right now. But I am interested in buying this pullback again. We will need to wait and see the BOJ river card before I do that and short more Yen. The Nikkei TREND support is 13,499. Keep an eye on that level.

Brazil

#CommodityDeflation is bad for commodity linked equity markets. Well, Brazil has been the consummate poster child of that and what we call #EmergingOutflows here at Hedgeye. The Bovespa was down -2.1% yesterday and continues to crash. It is down a whopping -22.2% year-to-date. On a related note, the only country that’s worse off year-to-date is yet another mining tape. You guessed it. It's Peru which has gotten whacked -25% year-to-date. 

SPY

So... is it going to be a 1% or a 2% correction this time? From the all-time closing high of 1709, it could be either. From our perch, the two immediate-term TRADE momentum lines of support that matter most right now are 1693 and 1676. Either could happen; maybe neither do. The reality is that stock market corrections have been few and far between. So our advice is simple: stay the course and stick with what’s been working for eight months now.

Asset Allocation

CASH 34% US EQUITIES 25%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 23%

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

What’s a 0.7%-1% $SPY correction (from the all-time high) when you have the Nikkei moving 2-4% up/down per day?

@KeithMcCullough

QUOTE OF THE DAY

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- Henry David Thoreau

STAT OF THE DAY

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