CLIENT TALKING POINTS
U.S.
Well the U.S. government is back to work and the debt ceiling is averted. For the time being at least. So now global equity markets should be rallying hard right? That’s not quite how it is working out this morning. U.S. futures are down, Europe is off 25 – 80 basis points, and Asia is up, albeit small. So much for the party! Our immediate risk range for SPX is 1. Now we have to focus on the Fed. The key question there is, of course, will they taper or not taper?
EUROPE
As global asset allocators, we have the choice to be underweight the U.S. and our view on Europe is looking very compelling on a comparative basis as we highlighted in our recent Q4 theme - #EuroBulls. The euro, a currency we do have longer term issues with, is breaking out on our quant models and is up another 70 basis points this morning to $1.3629 versus the U.S. dollar. Some interesting recent items of note include the Greek 10-year yield down 206 basis points month-over-month to 8.4% and European new passenger car registrations up the most in two years at +5.4% year-over-year in September.
TOP LONG IDEAS
DAX
In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.
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.
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.
Asset Allocation
| CASH | 42% | US EQUITIES | 18% | |
| INTL EQUITIES | 22% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 18% |
THREE FOR THE ROAD
TWEET OF THE DAY
Street isn't bearish enough on $WTW pic.twitter.com/Fs9zfCwwCX
QUOTE OF THE DAY
This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer. -Will Rogers
STAT OF THE DAY
U.S. National Debt: $16,964,507,500,000 (USDebtClock.org)
