Client Talking Points
What’s bad for the Buck and US Rates is good for the Europeans. Both the Euro and Pound bounced right where they should have this morning ($1.34 and $1.58 TREND supports, respectively) on another round of rock solid European growth data for October. UK Construction PMI moved up to an impressive 59.4 October, a new cycle high.
I bought Gold for the first time in a year on Friday. The immediate-term TRADE correlation between the US Dollar and Gold is -0.78, so I shorted the Dollar for the first time in over a year too. Shame on Ben Bernanke’s no tapering policy. It should slow growth back to 2% from 2.5% first, then we can decide from there (on the margin that matters).
If A) US GDP growth slows on Thursday and B) the European Central Bank doesn’t give into these ridiculous “rate cut” talks on Thursday, I think USD Down, Rates Down (or I wouldn’t have bought Gold and Treasuries on Friday). There's no support for 10-year yield to 2.55%, then 2.27% below that. Keep your head up out there.
|FIXED INCOME||6%||INTL CURRENCIES||26%|
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
QUOTE OF THE DAY
“You have enemies? Good. That means you've stood up for something, sometime in your life” -Winston Churchill
STAT OF THE DAY
Hyperinflation (Currency Burning) Watch: Venezuelan stocks up +23.9% week-over-week to +454% year-to-date.