Fear Fades

Client Talking Points

CHINA

What's that? Chinese Auto Sales ripped +21% year-over-year in September? Yup. Kaboom! The Shanghai Composite really liked that print. It closed up +1.7%. More importantly, China has moved back into the black for 2013 year-to-date. Make no mistake, this market is still hated. We are taking the other side and are now long of it via the FXI.

US DOLLAR

It was the "People vs Congress" this week and The People won! Witness the U.S. Dollar Index which is holding our long-term TAIL risk line of $79.21. That there was the most important market signal of the week. Now, I'll be the first to say that we are nowhere near out of the woods yet. We will outline our scenario analysis at 11am today on our Q4 Macro Themes conference call. 

GOLD

Both Gold and Bonds absolutely nailed front-running the blistering #NoDebtDefault move in US Equities yesterday. Silver is down basically -2.0% this morning. Meanwhile Gold continues to crash (alongside fear) at -23.5% year-to-date. Incidentally, 

SPX risk range is 1682-1708. We're back to bullish TRADE and TREND. Risk goes both ways, and it happens fast.

Asset Allocation

CASH 42% US EQUITIES 20%
INTL EQUITIES 22% 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

GOLD: continues to crash -23.5% YTD to $1285/oz as manic media scrambles for another crisis @KeithMcCullough

QUOTE OF THE DAY

"The only thing we have to fear is fear itself." - Franklin D. Roosevelt

STAT OF THE DAY

China's economic growth will exceed the official target of 7.5% this year while some economic risks such as local-government debts and "shadow banking" remain under control, web portal Sina.com reported Friday, citing the vice governor of China's central bank.