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Client Talking Points

US DOLLAR

The new public enemy #1 to the purchasing power of Americans (Janet Yellen) will be front and center in Washington this Thursday. Will she eliminate economic gravity expectations for the U.S. to ever taper? Ever? Will the foreign exchange market reverse all of last week’s US Dollar's gains? @Hedgeye TREND resistance for US Dollar Index is $81.29

EMERGING MARKETS

We brought back the pre-no-taper-decision band last week (Up Dollar + #RatesRising). Emerging Markets didn’t like that anymore than Gold did. The MSCI Emerging Markets down -1.7% and MSCI Latin America down -2.8% on the week with the Dow hitting another all-time high. This is getting gnarly again. Incidentally, the SPX risk range is 1748-1778 now.

GOLD

Gold was down -1.9% last week and down another -0.5% this morning. For almost a year now, my mean reversion target level for Gold has been $1271. So, I’m interested in buying back closer to that price with Janet Yellen being my catalyst on Thursday. The net long position (futures/options) in Gold dropped -13% last week. More to be revealed here.

Asset Allocation

CASH 62% US EQUITIES 6%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 20%

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 is the enemy of Gold? #StrongDollar + #RatesRising @KeithMcCullough

QUOTE OF THE DAY

The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults. -Alexis de Tocqueville 

STAT OF THE DAY

In the year 2000, there were only 17 million Americans on food stamps.  Today, there are more than 47 million Americans on food stamps.