A Close Eye on Oil & Bonds

Client Talking Points

OIL

Brent is down -0.5% this morning and testing our long-term TAIL risk line of $108.57 support for the secondtime this week. There’s potential for a big breakdown here if the US Dollar can find a way to fight off Ben Bernanke. Down Oil is obviously a good thing for US consumers and economic growth.

RUSSIA

Make no mistake: Vladimir Putin does not like the Petro Dollar being under pressure. Neither does the Russian stock market. It is down -1.4% this morning leading the losers. It is down at -2.8% year-to-date for the RTSI. You can bet your ruble that I’d like to see more of that.

UST 10YR

The 10-year Treasury yield is still hanging out there in no man’s land at 2.62%. Our TREND support is the line that matters most at 2.55%. The immediate-term TRADE resistance is 2.74% now. Next week's U.S. employment report should be a rather decisive factor in determining where it goes next. We are watching bonds and Ben Bernanke 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

@KeithMcCullough So much hate against you! You must be doing something right!!! @1ens

QUOTE OF THE DAY

He who lives by the crystal ball will eat shattered glass.
- Ray Dalio

STAT OF THE DAY

A shutdown of the U.S. government would reduce Q4 economic growth by as much as 1.4 percentage points depending on its length, economists say, as government workers from park rangers to telephone receptionists are furloughed. (Bloomberg)


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