Nikkei Smoked

Client Talking Points

JAPAN

The Nikkei got smoked for another -2.8% loss overnight. It's down -4.5% in the last 3 days. Got interconnected global macro market risk associated with Bernanke trying to bend economic gravity? Expectations of global growth slowing are definitely bending now as the Fed’s balance sheet moves toward +$1 TRILLION year-over-year (+$998.1 billion in last night’s report)

UST 10YR

We've got a 10-Year Treasury yield of 2.51% now with no immediate-term TRADE support to 2.46% and no intermediate-term support to 2.27%. Don’t forget how hot the monthly U.S. Economic data was in July-September, so it won’t be hard to see October-November data slow sequentially. The bond market is already front-running that – Bernanke completely missed his window to move.

GOLD

My 2013 bear case for Gold is ending. Now it’s all about timing the bull case. Gold down -0.3% and Silver down -1.7% this morning. So there’s plenty of time to take our time here. We need to see the $1316-1320 zone hold before I pull the trigger.

Asset Allocation

CASH 60% US EQUITIES 6%
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

Volatility (VIX) not hitting fresh YTD lows as $SPY tests the highs is an impt divergence @KeithMcCullough

QUOTE OF THE DAY

Luck is a dividend of sweat. The more you sweat, the luckier you get. -Ray Kroc

STAT OF THE DAY

The Fed's balance sheet was up another $25.4 Billion week-over-week to $3.839 Trillion.