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Client Talking Points

JAPAN

After a big move on bullish European economic data yesterday, a +3% move higher got the party started early in Japanese Equities as the Yen (versus the US Dollar) remains below 96.89 TREND resistance. The Nikkei is up almost 36% year-to-date. Ka-boom! But holding Hedgeye's TREND support of 13,362 is the more important risk management point. We like Japan. The rest of Asia? Not so much.

UK

Paul Krugman? He can stop writing about austerity crushing the UK economy now. The UK economic data sees #GrowthAccelerating yet again in August (so did the USA’s PMI print of 53 on Friday, don’t forget). Witness the blockbuster Construction PMI print of 59.1 this morning (versus 57 in July). Both the FTSE and Pound are bullish TREND in our Hedgeye model.

UST 10YR

Got #RatesRising? In case you missed it, the 10-year US Treasury yield corrected a whopping 4 basis points last week. Well, it bounced again this morning and is making yet another higher-low here trading back to 2.83%. There is no resistance up to 2.93%. Our Hedgeye immediate-term risk range is 2.71-2.93%. We are still bearish on bonds. And yes, we are still bullish on US growth stocks. The yield spread has widened back to +242 basis points. The Financials (XLF)? They like that.

Asset Allocation

CASH 26% US EQUITIES 27%
INTL EQUITIES 23% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

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

Yield Spread backs up to +242bps wide (10s minus 2s); should be bullish for $BAC today @KeithMcCullough

QUOTE OF THE DAY

"No matter what business you're in, you can't run in place or someone will pass you by. It doesn't matter how many games you've won." - Jim Valvano

STAT OF THE DAY

#RatesRising? The average rate for high-yield and investment-grade U.S. corporate debt surged almost a full percentage point from May to June. Even with the jump to 4.3%, rates are below the average of 6.9% in the decade before the start of the bull market.(Bloomberg)