Client Talking Points
Ahead of our central-planning Fed overlord doing his un-elected thing, in hopeful relief the U.S. Dollar rallied to another lower-high versus the Yen. Japanese stocks loved that. They closed up +1.2%, but just inside of 14571 Nikkei TRADE resistance as USD/YEN fails at 98.42 resistance. Keep your head up out there. This can all reverse within 24 hours. So just know where your mean reversion risks are.
Delivering alpha with a playbook Hedgeye GIP Model move triangulating Growth Inflation & Policy (Growth Stabilizing as Inflation Slows to -0.1% year-over-year CPI for October). This is the upside to a #StrongEuro. That’s why we call the Global Macro Theme for Q413 #EuroBulls.
We're Breaking Bad as interest rates front-run Ben Bernanke’s impact on U.S. #GrowthSlowing. The last three U.S. economic data points for September/October all slowed (see Pending Homes, Retail Sales, and Consumer Confidence). There's no support now for the 10-year to 2.40% then 2.27%. In the unlikely event that Bernanke whispers anything about being rational on monetary policy (read "tapering"), the breakout line is 2.60%.
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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'll probably take Commodities up from 0% after Bernanke speaks - need to hear from my overlord 1st @KeithMcCullough
QUOTE OF THE DAY
“It’s imperative that the Fed begins to taper.” -BlackRock's Larry Fink (after Fink begs the Fed not to taper)
STAT OF THE DAY
$17,000,000,000: Banks have agreed to fork over more than $17 billion in settlements with U.S. regulators so far in 2013. That's up from a little over $10 billion in 2012. And that doesn't include the $8 billion that JPMorgan Chase may get hit with soon.