Beijing, Brent & Bonds

Client Talking Points

CHINA

The Shanghai Composite is down -2.1% for very good reason. The FDI (foreign direct investment) print for August was a nasty 0.6% versus +24% in July. Now that's just nasty. Look, the Chinese don’t like the Down Dollar move inasmuch as I don’t. Asian Emerging Market currencies that float freely? They do.

OIL

Without question, the most bullish economic development of the last week is removing the Syrian Oil tax. After snapping our immediate-term TRADE line of $114.97 support, Brent is in a good spot to remain under pressure now. Don’t forget that only two weeks ago, we saw the highest net long (futures/options contracts) position ever in crude. Yup... ever is a long time.

UST 10YR

Just 24 hours ago, bond bulls were hoping, begging and wishing for Janet Yellen to bring back the easy money Fed love. Instead, all the 10-year yield registered was yet another higher-low within our Bullish Formation. Don't look now, but it is holding all lines of TRADE, TREND, TAIL support. Repeat: All lines. The immediate term risk range now is 2.80-2.98%. The Queen Mary has turned ladies and gentlemen. There's no going back now.

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

In the @Hedgeye S&P Sector Risk Model 7 of 9 Sectors remain bullish TRADE & TREND. 2 of 9 are bearish: Utilities $XLU & Consumer Staples $XLP

@KeithMcCullough

QUOTE OF THE DAY

"I'm so fast that last night I turned off the light switch in my hotel room and was in bed before the room was dark." -Muhammad Ali

STAT OF THE DAY

Got #RatesRising yet? 10-year Treasury yields climbed as high as 2.999% Sept. 5 from 1.93 percent on May 21, the day before Ben Bernanke said that the central bank could “take a step down in our pace of purchases” in the “next few meetings.”


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