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Client Talking Points

UK

A big time (read: 16-year high) #GrowthAccelerating data point out of the United Kingdom this morning with a Services Purchasing Manager's Index (PMI) for October of 62.5. Boom. All of the austerity whiners and Keynesians out there who don’t like #StrongPound should feel shame. The Pound Sterling is up +0.5% versus the US Dollar. We remain long of it.

US DOLLAR

The Dollar is failing at its intermediate-term TREND line of resistance again this morning with no support to the TAIL risk line of $79.21. Meanwhile, Bloomberg is running a ridiculous headline that the Fed’s policy should be “prolonged” to “stoke growth.” Huh? In related news, Rates Down, Dollar Down still means US Growth expectations down. See our chart of the day and US economic history for more information.

NATURAL GAS

One of the stealth leading indicators for the credibility of US Growth’s slope (accelerating or slowing) is the one that is most hostage to domestic supply and demand. Natural Gas got crushed for a -7.8% loss last week. It's down another -1% this morning. It's officially bearish TREND now here at Hedgeye.

Asset Allocation

CASH 36% US EQUITIES 6%
INTL EQUITIES 20% COMMODITIES 6%
FIXED INCOME 6% INTL CURRENCIES 26%

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

There is a gaping divide between how Global Macro practitioners view the world and how academic economists view the world...@HedgeyeDDale

QUOTE OF THE DAY

"Man will never be able to build a flying device like a mosquito. I look at nature's complexity and think, man has the intelligence of mold growing on an apple." -Ray Dalio

STAT OF THE DAY

You have a 1 in 2,067,000 chance of dying in a plane crash and a 1 in 423,548 chance of dying from falling out of bed. (cracked.com)