Armageddon (Or Not)

Client Talking Points

CHINA

Thank goodness the Chinese re-opened the stock market. The Shanghai Composite led the charge in Asian Equities overnight closing up +1.1% after another growth stabilizing report. Chinese Services PMI was 52.4 in September versus 52.8 August. Meanwhile, the rest of Asia also acted well all things considered. Thailand was up +1.3%, Indonesia up +1.2, etc. We are long China now via the FXI ETF. US stocks? They're down 10 out of the last 13 days since Bernanke opted not to taper. Asia doesn’t care.

ITALY

Question: Can government “save” its market from itself? Witness the freshly squeezed year-to-date highs for the Italian stock market this morning. The rest of European equities are trading sideways. This is the most positive divergence in global equities in the last week.

YEN

Will the Yen make another lower-high? Will the US Dollar Index hold its long-term TAIL support of $79.21? End of the world ("EOW") watchers need to know. Because if you’re looking for a US “default” to drive the US Dollar into total oblivion, we’re looking to take the other side of that. So keep these levels in proper context.

Asset Allocation

CASH 55% US EQUITIES 12%
INTL EQUITIES 18% 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

Ridiculous Bloomberg headlines continue > A U.S. Default Seen as Catastrophe Dwarfing Lehman’s Fall http://bloom.bg/1fbxgxo 

@KeithMcCullough

QUOTE OF THE DAY

He knows nothing and he thinks he knows everything. That points clearly to a political career.- Sir Walter Besant

STAT OF THE DAY

The Dollar Index, which measures the U.S. currency's value against a basket of currencies, DXY, is still within striking distance of last week's 8-month low of 79.627.