September 18

Client Talking Points

JAPAN

The Nikkei does not like the idea of the Yen breaking out again versus US Dollar. Nikkei was down -0.8% last night and has done nothing but make a series of lower-highs ever since when? September 18. That of course was the day Ben Bernanke decided to devalue USD vs YEN. Yep.

OIL

A big breakdown in Brent continues this morning. The TAIL risk line is plenty snapped now up at $108.67. This is one of the few good things going on for the global consumer right now. You can buy European stocks on this inasmuch as US stocks, but Wal-Mart (WMT) acts great.

UST 10YR

See that? That's the 10-Year Treasury Yield sitting in no man’s land. It's plunked down right on @Hedgeye TREND line of 2.63%. Make no mistake: the next move here is going to be big (up or down). My bet is on Down Yields if US Dollar fails versus the Euro and US GDP slows. More to be revealed.

Asset Allocation

CASH 32% US EQUITIES 6%
INTL EQUITIES 22% COMMODITIES 8%
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

I'm the only one on Twitter who didn't think the ECB should or would cut, allegedly @KeithMcCullough

QUOTE OF THE DAY

Twitter is my bar. I sit at the counter and listen to the conversations, starting others, feeling the atmosphere. -Paulo Coelho 

STAT OF THE DAY

From April to June, 75% of Twitter's users accessed the service from mobile devices, compared to 66% in the same three months in 2012. In addition, 65% of its ad revenue came from mobile. Facebook, in comparison, gets 41% of its ad revenue from mobile devices.