Summer(s) Is Over

Client Talking Points

USD

So, what does down US Dollar mean? It means that everything "bubbly" (Sovereign Bonds, Emerging Markets, etc. other than Commodities) are up this morning. Since consensus leaned way too bearish on equities in August, you might very well see a rip to a lower-all-time high in the S&P 500 that you can sell into today. We will soon see. Don't forget that the market is also discounting the Fed being behind the curve on growth.

10YR

Treasuries, Gilts, Bunds, etc are all bid up to lower-highs this morning as we probe the low-end of my immediate-term risk range for UST 10yr yields. 2.80-2.99 is the range now. We are not short Treasuries here. But we very well may be by the day’s end. There is more bullish US economic data plus Fed tapering all pending this week.

COMMODITIES

Yes - I’m actually shocked that Gold is down on this. But markets tend to shock us. Part of the blow off in Gold and Oil this morning is the net long position in both coming off year-to-date highs in the last week of August. Oil’s net long (futures/options) position dropped -5.2% last week (Gold’s was -16%) as both commodity prices led global macro decliners week-over-week.

Asset Allocation

CASH 30% US EQUITIES 24%
INTL EQUITIES 22% 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.

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.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Lots of people said "tapering" would be the end of stocks in 2013 - it was the end of Gold Bonds @KeithMcCullough

QUOTE OF THE DAY

“It is a mistake to try to look too far ahead. The chain of destiny can only be grasped one link at a time" - Winston Churchill

STAT OF THE DAY

Boom! Pimco's Total Return Fund has lost more than $41 billion, or 14% of its assets, during the past four months through losses and investor withdrawals. Got #RatesRising yet?