CLIENT TALKING POINTS
CHINA
A big macro day in China with Chinese CPI coming in at +2.7%, PPI declining for the 17th straight month down -2.3% year-over-year, and retail sales up a solid +13.2% year-over-year. That last data point continues to be supportive of our view that Chinese GDP is in a phase transition from an export led economy with a focus on infrastructure build out, to a consumption driven economy, with a lower aggregate growth rate.
JAPAN
This Sunday we will get preliminary GDP numbers from Japan and this will be the focus of many global macro investors. The main event in global macro this year has been the rapid decline and volatility of the Yen. In turn, this has supported strength in the U.S. dollar, which has implications across asset classes with varying degrees of correlations. We aren’t going to attempt to tell you where the number will come in. That said, we continue to have conviction that regardless of any short term data, the Japanese will have to continue to stimulate, and aggressively so, in order to get anywhere in the zip code of their long run inflation target of 2% and nominal growth of 3%. To get to these targets, the Japanese policy makers will require a whole lot of “Control P” (printing), which makes the long run bear case on the yen very compelling.
SPY
The ferocious bear raid in U.S. equities took its toll with a cumulative decline of 71 basis points over the last four days (#SarcasmAlert). We’ve been harping on this all year, but as the U.S. economy continues to transition from stabilizing to accelerating with labor and confidence hitting levels not seen since 2007, U.S. equities will continue to find a bid on any sell off. The longer term supporting bid in U.S. equities is, of course, the theme that our financials team has been focused with their recent launch on asset managers, which is the current, and we expect continued, outflows from fixed income assets as interest rates grind higher. This will only accelerate if U.S. economic data continues to come in strong.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 33% | US EQUITIES | 26% | |
| INTL EQUITIES | 19% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 22% |
THREE FOR THE ROAD
TWEET OF THE DAY
George Clooney knows more about retail than Bill Ackman. $JCP
QUOTE OF THE DAY
Shallow men believe in luck. Strong men believe in cause and effect.
- Ralph Waldo Emerson
STAT OF THE DAY
Japan's finance ministry released data Friday showing that the country's debt burden has topped 1 quadrillion yen for the first time. If you want to get specific, Japan's central government debt at the end of June was 1,008,628,100,000,000 yen. (CNNMoney)