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Client Talking Points

US DOLLAR

The Dollar is getting pulverized. Why? Because the U.S. doesn’t have a monetary policy to protect it. Euros and Pounds love this. Guess what? The world will even buy Yens if Ben Bernanke doesn’t buck up to the bar. With my long-term TAIL risk line of $79.21 USD Index under attack, I went to net short in #RealTimeAlerts yesterday (6 LONGS, 9 SHORTS).

UST 10YR

On the margin, Dollar Down is bad for real consumption growth. Rates and Dollar down is really bad – the 10-year snapped our Hedgeye TREND support of 2.58% like a hot knife through butter yesterday. Meanwhile, the 10s/2s Spread is compressing fast again this morning. This is not good for the Financials (XLF). And make no mistake, it's not good for the Growth Style that’s led this 2013 US stock market.

JAPAN

Here's the formula: Down Dollar, Up Yen = Down Nikkei (-2% overnight). The Nikkei breaking my immediate-term TRADE line of 14,465 is the more important point. That development, along with the Gold move higher yesterday were big bell ringers in my model. It's really important to monitor the follow through from here. 

Asset Allocation

CASH 54% US EQUITIES 8%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

Top Long Ideas

Company Ticker Sector Duration
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.

Three for the Road

TWEET OF THE DAY

We made 2 big Dow component short calls this wk - $MCD and $CAT - both companies hate us for it @KeithMcCullough

QUOTE OF THE DAY

In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero. -Charlie Munger

STAT OF THE DAY

Banks underwriting Twitter's upcoming IPO have officially agreed to lend it as much as $1 billion over the next five years, according to a new filing with regulators. The $1 billion revolving credit facility, which was completed this month and will mature in October 2018, was detailed in an updated SEC filing late on Tuesday.