Client Talking Points
One of the main reasons why it has been "less easy" to be bullish on the S&P 500 and the Nikkei was that the Yen was stabilizing versus the US Dollar. Not this week. And the Nikkei loved that Yen breakdown of 97.71 support overnight. It busted a big +2.2% move off the @Hedgeye TREND line of 13,330 support. Correlations matter.
#RatesRising remains our top Global Macro Theme for Q3. The 10-year is yielding 2.89% this morning. That's up +6 basis points week-over-week and up +38 basis points year-to-date. Boom. This debate should be moving toward when we hit 4% on the 10-year instead of 3%. If the US Dollar joins this breakout in rates, it will continue to be very bullish for growth investors. Bearish for slow-growth positions like Utilities (XLU). Sell bonds, buy stocks.
One of the nice little perks to a #StrongDollar versus weak Yen is a consumption tax cut via #CommodityDeflation. Both the US Dollar and S&P 500 are up now on the week, but the CRB Index is down -1.7% after failing at our 293 TREND line of resistance. Again, correlations matter. Rinse and repeat.
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Top Long Ideas
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.
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.
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
After a 1.5-3% correction from the YTD highs in the SPY, QQQ, and IWM, I’m seeing the least amount of bulls of the yr
QUOTE OF THE DAY
"We should be dreaming. We grew up as kids having dreams, but now we're too sophisticated as adults, as a nation. We stopped dreaming. We should always have dreams." -Herb Brooks
STAT OF THE DAY
The Indian rupee hit a record low on Thursday at 65.56 per dollar and is down roughly 17% this year. It has overtaken the yen as the world's worst performing major currency this year. #AsianContagion anyone?