Freak Out?

Client Talking Points

OIL

If you really feel the need to freak-out about something, freak out about rip roaring oil prices. That's your Huckleberry. Higher oil prices would obviously slow what’s been a sequential doubling of US Consumption Growth (2H12 to 1H13). Oil had already been signaling bullish above our TAIL risk (breakout) line of $108.11. So it was in motion, but up at $115.42 this morning this is a real bell ringer. We're watching this very closely.

10YR UST

Our call on #RatesRising is all about levels. The immediate-term TRADE line of support is 2.69%. Then there's a ton of TREND support below that at 2.44%. I re-shorted the long bond yesterday. If you’re going to do that, higher-lows in bond yields is where I start. US growth stocks trade with a positive correlation to rates.

SPY

So how does that -1.6% drop look within the context of the Top-3 drops since April? It ranks as #3 (June 20th was -2.5% and April 15th was -2.3%). You haven’t had many opportunities to buy US growth stocks in 2013. This one is a shallower correction (on less volume) and S&P 500 TREND support is literally right where it closed yesterday. It's time to make some decisions.

Asset Allocation

CASH 32% US EQUITIES 25%
INTL EQUITIES 23% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 20%

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

II Bull/Bear Spread just tanked to a 6mth low - uber bullish signal. Only 38.1% in the survey admit to being bullish; that's a fresh YTD low. @KeithMcCullough

QUOTE OF THE DAY

I think that the first thing is you should have a strategic asset allocation mix that assumes that you don't know what the future is going to hold. -Ray Dalio

STAT OF THE DAY

The six biggest U.S. banks, led by JPMorgan and Bank of America, have piled up $103 billion in legal costs since the financial crisis, more than all dividends paid to shareholders in the past five years. That’s the amount allotted to lawyers and litigation, as well as for settling claims about shoddy mortgages and foreclosures. The sum tops the banks’ combined profit last year. (Bloomberg)


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