Beware Out There

Client Talking Points

CHINA

The Chinese government removing liquidity is definitely having an impact. Officials clearly don’t want the property market to be this hot. So, despite another #GrowthStabilizing PMI uptick print of 50.9 in October versus 50.2 in September, the Shanghai Composite was down another -0.9% overnight. China is down -2.2% in the last two  days after breaking immediate-term TRADE support of 2189.

GOLD

Newsflash: This is the first time in at least a year that I am actually considering buying Gold. Now that’s not because I have a religion about it or anything like that. It's my signal that’s stabilizing for the first time in a year. We need to see $1316 hold. A breakout over $1345 would be explicitly bullish. Bernanke should be so proud of himself. Slow-growth investors, unite!

UST 10YR

Follow the flow. Rinse and repeat. The 10-year Treasury Yield snaps our Hedgeye TREND support of 2.58% and gold is stabilizing. Nope, there's no irony in that signal. Gold loves competing with absolute returns of 0%. Watch all your long “growth” styles. They have plenty of room to correct.

Asset Allocation

CASH 58% US EQUITIES 8%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 16%

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

I'll debate anyone, anywhere, on the history of burning your currency at the stake and its growth implications @KeithMcCullough

QUOTE OF THE DAY

If you want to know how rich you really are, find out what would be left of you tomorrow if you should lose every dollar you own tonight.
-William J. H. Boetcker

STAT OF THE DAY

The U.S. dollar has declined 1.1 percent against a basket of 10 leading global currencies in the last month. (Bloomberg)


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