CLIENT TALKING POINTS
ASIA
The Nikkei's rally on Up Dollar/Down Yen was short lived. After testing 14,491 TRADE resistance on the Yen selloff, the Nikkei failed and dropped -1.2%. That’s not good. Neither is China down another -0.9% after failing at 2189 TRADE resistance on the Shanghai Composite. #lowerhighs
ITALY
Good is good for our #EuroBull Q4 Macro theme as Italy’s inflation continues to slow. It's down to +0.7% year-over-year now from up +3.4% only a year ago. A #StrongEuro perpetuates Down Inflation. Our Hedgeye playbook loves that. Italy’s stock market and divergence this morning is on that too up +0.6%.
US DOLLAR
Trick or treat? TREND or TAIL? The U.S. Dollar's long-term TAIL support line of $79.21 was recovered. That’s good. Why? Because it means we won’t look like Venezuela this week. Phew. But the TREND resistance remains overhead at 80.16. So, unless you’re a long-term holder of dollars, you want to wait and watch on this thing. Pimco's Bill Gross begging for higher taxes this morning? Yuck. The Dollar Devaluation and Bond Bull Lobby is coming on thick.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 52% | US EQUITIES | 6% | |
| INTL EQUITIES | 20% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 22% |
THREE FOR THE ROAD
TWEET OF THE DAY
MT @KeithMcCullough Bernanke #BondBullLobby by Gross/Gundlach is thick. Reality: Ben created MBS + corp mkt that real guys cant get out of @Hedgeye
QUOTE OF THE DAY
“You can’t tax business. Business doesn’t pay taxes. It collects taxes.” -Ronald Reagan
STAT OF THE DAY
Disappearing bonuses? Goldman Sachs, along with the investment-banking divisions of six of its biggest U.S. and European rivals, allocated a collective 39% of revenue for compensation in the first nine months, down from 42% a year earlier and the 50% some firms earmarked before the financial crisis. Goldman Sachs’s 41% ratio so far this year is its lowest nine-month figure as a public company.