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Client Talking Points

CHINA

Down Rates = Down Stocks (in both China and the USA). China doesn’t like Down Dollar inasmuch as I don’t. The Shanghai Composite was down almost -2% overnight. It has now corrected -4.5% from its September high. The A-shares are getting interesting to us on the long side for the first time in years.

US DOLLAR

In case you somehow missed it, the US Dollar is hanging on by its toe-nails at this point. "Toe-nails" being the year-to-date lows and the long-term TAIL risk line of $79.11 support, So the question now becomes whether or not the Japanese can be even more dovish (from here) on the margin than this Bernanke/Yellen circus. October taper talk? That would help.

UST 10YR

Rates Down = Stocks (and growth expectations) Down. After FIVE straight S&P 500 down days, more people are beginning to agree with me now on that. Growth and inflation expectations are embedded in a sovereign bond yield’s TREND. The 10-Year U.S. Treasury TREND support is 2.55%. TRADE resistance now is 2.76%. #ToughSpot

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

BREAKING: US GDP Growth for Q213 2.5% - might be as good as it gets for 2013 @KeithMcCullough

QUOTE OF THE DAY

I will simply say that I disagreed with the decision of the committee and argued against it. Here is a direct quote from the summation of my intervention at the table during the policy “go round” when Chairman [Ben] Bernanke called on me to speak on whether or not to taper: “Doing nothing at this meeting would increase uncertainty about the future conduct of policy and call the credibility of our communications into question.” I believe that is exactly what has occurred, though I take no pleasure in saying so. 

- Federal Reserve Bank of Dallas President Richard Fisher


STAT OF THE DAY

The number of Americans filing new claims for jobless benefits fell last week to near a six-year low, a promising sign for the labor market. Initial claims for state unemployment benefits dropped 5,000 to a seasonally adjusted 305,000, the Labor Department said this morning.