CLIENT TALKING POINTS
CHINA
Good news out of China this weekend. September's HSBC flash purchasing managers index came in at a better than expected and expansionary 51.2. This was also a sequential improvement from August of 50.1 and the highest reading since March. Shanghai Composite up over 1.3% this morning leading most of the major Asian indices. The set up for China gets increasingly interesting if the HSBC survey is correct and Chinese GDP is set to accelerate sequentially and exceed current consensus estimates.
EUROPE
Economic data out of Europe this morning is largely positive. While the Eurozone flash manufacturing PMI edged down to 51.1 in September from 51.4 in August, both the Services and Composite PMI hit 27-month highs. This is just one data series, but the potential for a sustained European recovery is a theme that you will likely see Hedgeye highlighting more often heading into year-end. Meanwhile, a great day for Angela Merkel. German voters gave her a third four-year term and a better-than-expected showing for her Christian Democrat party, possibly leading to an absolute majority in Parliament. Our immediate-term Macro Risk Range for the DAX is 8.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 45% | US EQUITIES | 20% | |
| INTL EQUITIES | 20% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 15% |
THREE FOR THE ROAD
TWEET OF THE DAY
The Euro is the beneficiary of Bernanke devaluing America's Purchasing Power - EUR/USD +1.7% last wk to +2.5% YTD
QUOTE OF THE DAY
"We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though." -Ben Bernanke, July 2005
STAT OF THE DAY
The S&P 500 has risen more than 150 percent since March 2009.