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Client Talking Points

INDIA

One of the best performing stock markets in the world this week was India’s Sensex. It closed up another +0.3% while markets like Japan were down -0.9% and Indonesia was down -1.7%. India is being rewarded for having a spine on their currency monetary policy – raising rates.

#EUROBULLS

While the Russell 2000 corrected -1.9% from its all-time high into month end, EuroStoxx powered to close the month at new highs. I still like European stocks more than U.S. stocks because I like the Euro here more than the U.S. Dollar. Incidentally, the USD is immediate-term overbought within a bearish TREND.

GOLD

Gold is holding flattish at $1322 this morning. I’m still waiting on buying Gold for the first time in a year. Research and risk signals are two entirely different things, and I tend to go with the signal over the research because I’m not smarter than the market. Our asset allocation to Commodities has been 0% for almost a year now (the CRB Index hit a new year-to-date low yesterday of -6.1%). So, buying gold would take me off 0%, if and when I do.

Asset Allocation

CASH 52% US EQUITIES 6%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

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

What a joke that default fear mongering was by #OldMedia - drove all-time highs in $SPY though @KeithMcCullough

QUOTE OF THE DAY

I'm getting sick and tired of doing anything half-way. -Knute Rockne 

STAT OF THE DAY

58%: For marijuana advocates, the last 12 months have been a period of unprecedented success as Washington and Colorado became the first states to legalize recreational use of marijuana. And now for the first time, a clear majority of Americans (58%) say the drug should be legalized. This is in sharp contrast to the time Gallup first asked the question in 1969, when only 12% favored legalization.