Client Talking Points
I didn’t think they would cut. But when they did, I sold everything Europe. I have no patience whatsoever for these people doing stupid things. Cutting rates while growth was accelerating? Just incredible. Euro Down = European Stocks Down, for now. Our EUR/USD TREND line of support ($1.34) is credibly and deservedly under attack.
Note to the Fed and ECB: All Asian growth markets have done nothing but go down since September's "No-Taper" decision in the U.S. and yesterday’s ECB rate cut decision. From the mid-September highs, Japan’s Nikkei is down -4.6%. The Shanghai Composite is down -6.7%. All of a sudden, the Yen is losing the currency war versus Fed and ECB!
In related news, the U.S. bond market took that ECB cut as another US #GrowthSlowing signal yesterday. (Incidentally, it is easy to slow from 2.84% GDP). Witness a nice move higher in bonds (not in the higher beta Gold trade). It's actually fascinating to watch this un-elected and un-precedented currency war play itself out. This morning's U.S. jobs report up next. 2.63% is the Hedgeye TREND line for the 10-year Treasury.
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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
TWEET OF THE DAY
U.S. Stocks Are Not ‘Bubbly,’ Says JPMorgan’s Lee. Funny - he said the same thing in mid 2008 @zerohedge
QUOTE OF THE DAY
“People generally see what they look for, and hear what they listen for.” -Harper Lee, To Kill a Mockingbird
STAT OF THE DAY
According to a recent Gallup poll, a whopping 70% of American workers have "checked out" at work, and 20% actively hate their jobs.