Dollar, Bonds & Fear

Client Talking Points

US DOLLAR

This is key: Both the US Dollar Index and the USD vs YEN are trading at critical lines of support ($79.21 is the long-term TAIL risk line for US Dollar Index and USD/YEN TREND support is 97.71). So, which way do we go from here? It's gravity (Friday jobs report) vs government now (Bernanke/Congress). It ought to get interesting. 

UST 10YR

The bond market is ignoring the government gong show and shutdown noise and looking forward (as usual) to the jobs report. If 2.55% TREND support on the 10-year holds (2.65% and #RatesRising this morning) and that jobs report is a big one, look for big time volatility in bonds to remain.

VIX

Front month fear is now officially back above my immediate-term TRADE breakout line of 14.64. So I’m watching that as closely as I am 1686 support (now resistance) in the S&P 500. Since the Bernanke Fed has successfully confused the entire market on the taper, this upcoming jobs report really matters this time. I will let Mr. Market tell me where to go next.

Asset Allocation

CASH 50% US EQUITIES 16%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 16%

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

So is the next market catalyst Congress savings us from themselves, again? @KeithMcCullough

QUOTE OF THE DAY

The best minds are not in government. If any were, business would steal them away. -Ronald Reagan 

STAT OF THE DAY

$300,000,000: A partial shutdown of the federal government would cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. While that is a small fraction of the country’s $15.7 trillion economy, the daily impact of a shutdown is likely to accelerate if it continues as it depresses confidence and spending by businesses and consumers. (Bloomberg)


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