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Client Talking Points

US Dollar

Here's a simple market observation: Down Dollar, Down Rates = Down Stock Market now for 4 consecutive days. Make sure you've got that one straight. Our Fed Chief Ben Bernanke is both un-elected and unaccountable. So don’t worry about him being held responsible for this re-rating of US growth expectations. Want to blame somebody? Blame Congress.

UST 10YR

No surprise here: Bond yields are down once again this morning to 2.64%. Down Dollar, Down Rates are an explicit #GrowthSlowing expectations signal. So is the Yield Spread (10-year minus 2-year) which has compressed 21 basis points since Larry Summers bowed out to Bernanke-Yellen. Decisions have consequences.

OIL

Brent took a skinny dip below our long-term TAIL risk line of $108.57. Then it popped right back up to $109.35. So, while the water looks warm and inviting, I’m not shorting Oil until this TAIL break is confirmed for more than a day. We're watching this one very closely.

Asset Allocation

CASH 49% US EQUITIES 16%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

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

Dollar and Rates falling remains a new threat to US #GrowthSlowing @KeithMcCullough

QUOTE OF THE DAY

"Whoever controls the volume of money in any country is absolute master of all industry and commerce." -James A. Garfield, President of the United States

STAT OF THE DAY

Americans are pessimistic about the course of the country, with 68% saying it’s headed in the wrong direction, the most in two years, according to the poll of 1,000 adults conducted Sept. 20-23.(Bloomberg)