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Client Talking Points

BANK OF ENGLAND

The UK is seeing the same 2-stroke pro-growth economic engine that both the US and Europe was seeing before central planners intervened and banned gravity (#StrongPound + Gilt #RatesRising = falling unemployment and rising consumption growth). BOE Governor Mark Carney says he likes that. Good! He's raising his GDP forecast for the UK for 2014 to 2.8%. Buy The Pound (see note below).

US DOLLAR

The USD Index took another run at Hedgeye TREND resistance of $81.38 yesterday. It failed (again). This makes sense because Janet Yellen will likely remind Washington and the rest of the world who she is in her testimony tomorrow in DC. That ought to be dovish (hence Bearish for The Buck). It is also bullish for Gold. Yes, I bought it back on the oversold signal again yesterday.

CHINA

The Shanghai Composite is getting smoked. It's back into its down -5.2% year-to-date hole again as Western short-termers don’t like the longer-term duration of Chinese policy plans. Overall, Asia is weakening again with Hong Kong down -1.9%, Indonesia -1.8%, and Korea breaking its Hedgeye TREND line overnight at -1.6%.

Asset Allocation

CASH 56% US EQUITIES 5%
INTL EQUITIES 5% COMMODITIES 6%
FIXED INCOME 8% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper. 

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

Looks like Bill Gross is trying to sell some MBS - that's going to take a long long time @PIMCO @KeithMcCullough

QUOTE OF THE DAY

If you are going through hell, keep going. -Winston Churchill

STAT OF THE DAY

A painting by artist Francis Bacon sold for $142,405,000 on Tuesday, breaking the record as the most expensive piece of art ever auctioned. "Three Studies of Lucian Freud" was sold after six minutes of bidding in the room and on the phone at Christie's in New York City.