Client Talking Points
This happens infrequently, so pay attention. With the Financials (XLF) down -0.2% and Russell 2000 lagging at +0.3% last week (versus the slower growth Dow +1.1% and Utilities +2.0%), the VIX was actually UP +0.4% on the week, making a higher low. Not good.
The long-term love affair with Ben Bernanke has been epic. Since the no-taper decision, it's been Dollar Down, Gold Up. Gold was up +2.7% last week. It officially moves out of crash mode for the year-to-date at -19.8%. I'm still waiting for my levels to confirm before buying it. Stay tuned.
If you ask the bond market, Ben Bernanke is going to pander to the Bond Bull Lobby (check out 2.52% on the 10-Year this morning, below @Hedgeye TREND resistance of 2.60%, not a good US growth signal). Slow-growth styles loved this development last week. Utilities, MLPs and REITS all were up around 2% across their subsector ETFs. Isn’t this great?
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Top Long Ideas
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 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.
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'd need to see 10yr Yield close (and hold above) 2.61% to get back on the bear Treasuries train @KeithMcCullough
QUOTE OF THE DAY
"Better to go to bed supperless then wake up in debt." -Ben Franklin
STAT OF THE DAY
American Purchasing Power (U.S. Dollar) down -3.4% in the last three months to now negative -0.7% year-to-date. Euro +0.8% last week versus USD, now +4.0% year-to-date.