Japan Still Center Stage

Client Talking Points

JAPAN

We haven’t bought the Nikkei back just yet, but we probably will if this critical 13,331 TREND line holds. The Nikkei has of course been weak because the Yen has been strong. It’s been a counter TREND move that is starting to frustrate a lot of people. I'm getting a lot of questions on this and the US Dollar. The Yen is down -0.54% vs USD this morning.

USD

The US Dollar was down a full 1% last week. We bought it back on that move after it signaled immediate-term TRADE oversold right around $81.11 on the US Dollar Index. This level was tested in an early June selloff in USD (then the USD made a year-to-date high by early July), so the FX market can obviously whip people around. We are trying to be patient here, instead of drawing new 3-year conclusions on a 1-month low volume, summer move.

GOLD

Hedge funds cut their net long position by 27% in futures and options contracts last week to +48,103 net longs. So now Gold can go up again on that. Gold is up +1% this morning with Silver gaining +2.5%. The 10-year US Treasury yield is not budging though. So it will be important to watch Gold/10yr/USD, in unison, this week.

Asset Allocation

CASH 34% US EQUITIES 24%
INTL EQUITIES 19% 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

TREASURIES: not budging despite US Equity futures down = 2.59% 10yr yield @KeithMcCullough

QUOTE OF THE DAY

Whether you think you can or you think you can’t, you’re right.

– Henry Ford

STAT OF THE DAY

$91,000,000: Facebook's COO Sheryl Sandberg sold nearly 2.4 million shares of the social network's stock last week at an average price of $38 per share for approximately $91 million.


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