Markets Mute Fear Mongrels

Client Talking Points

CHINA

How did the United States' top creditors respond to Obama & Boehner fear-mongering “default” spew? Well, they both went up (China & Japan). China is actually up both days since the holiday week conclusion. It's bounced back and is now in positive territory year-to-date. We remain long China (new position) via the FXI exchange traded fund.

EUROPE

Most European Equity markets don’t care about the US fear-mongering either. The Eurostoxx600 is also up this morning. Over in Germany, the DAX is holding all lines of support. Meanwhile, Italy’s stock market is hitting a fresh year-to-date high post the USA smackdown to oversold. Bottom line: The global response to Washington is to put conflicted politicians on mute.

US DOLLAR

You would think the big Janet Yellen Fed news would be Dollar bearish. You would probably think the news would be Gold bullish too. Think again. It's certainly not the case this morning. That’s because the U.S. Dollar was oversold alongside S&P 500 into yesterday’s close and Gold continues to crash year-to-date.

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

On the road seeing clients in Boston today. I'll walk through why I like China and Germany better than US Equities

@KeithMcCullough

QUOTE OF THE DAY

Fall seven times and stand up eight. –Japanese Proverb

STAT OF THE DAY

The new $100 bill costs 12.5 cents to produce — a 60% increase over the 7.8 cents it cost to print the older version of the bill. The U.S. government has printed 3.5 billion of the new $100 bills, which it began delivering to financial institutions yesterday.