CLIENT TALKING POINTS
CHINA
Stealing the central planning headlines from the Federal Reserve and European Central Bank bureaucrats this morning is a welcome change: the Shanghai Composite rips a +2.8% move back above its 2,162 TREND line as reform plans are applauded. Hang Seng up +2.7% on that as well.
DAX
Germany's DAX is up +0.5% to +21% year-to-date. Like the S&P 500, the German stock market is clocking another overbought all-time high. Since both Barron's and Yellen say no bubbles, they are officially developing bubbles. (Is there a better reference point than the all-time high?). Risk managing them from here will be our task. The DAX going up with the EURO as Yellen trumps the ECB cut.
OIL
Brent fails right at our Hedgeye TAIL risk line of $108.69. So we would be shorting that here. Right now, at +336,294 net long futures/options contracts, this is still by far the most consensus net long position to fade in all of Big Macro. Incidentally, we sold our Gold on the Yellen bounce last week. We're just trading that in a bearish 1 range for now.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 64% | US EQUITIES | 6% | |
| INTL EQUITIES | 8% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 22% |
THREE FOR THE ROAD
TWEET OF THE DAY
Last week was another friendly reminder that if you don't do macro, macro will do you. Hard, fast and often.@HedgeyeDDale
QUOTE OF THE DAY
Never bend your head. Always hold it high. Look the world straight in the eye. -Helen Keller
STAT OF THE DAY
Bitcoin was off to the races this morning, soaring to new highs above $600 — to $618.94 — and last at $610 in choppy trade on Mt. Gox. Washington D.C.’s blessing and a Chinese feeding-frenzy: What more could a virtual currency ask for?