Client Talking Points
So Ben Bernanke spoke at the Keynesian Central Planning Club of Washington D.C. yesterday. He basically did more of what we have come to expect from him (no December taper... Change the goal posts on tapering targets). Surprise, surprise. The Dollar is down again this morning (FYI - it's down -1% on the US Dollar Index since Yellen spoke last week.) Bernanke thinks the “surest path to economic recovery” is to do more. He’s sure about that. And that’s the problem.
After failing right at its $81.39 Hedgeye TREND line on Yellen Day, it will be interesting to see if the USD can bounce to another lower-high from here. I think those buying dollars in hopes of a December taper are going to be as wrong as those who bought into the idea that “Yellen will be more hawkish than you think." She’s the Mother of all Doves. Deal with it.
Oil has completely lost its USD correlation (for now). Our TAIL risk line of $108.69 on Brent remains resistance. We’re short Oil and looking for $103.68 Brent next. Russian stocks lead the losers on weak oil this morning. The RTSI is down -1.3% and back down to -2.1% year-to-date.
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Top Long Ideas
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 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
QUOTE OF THE DAY
I haven't celebrated coming in No. 2 too many times.
STAT OF THE DAY
J.C. Penney reported a larger-than-expected quarterly loss this morning, but the ailing retailer said there will be continued improvement in sales during the current quarter. Shares of J.C. Penney jumped more than 9% ahead of the opening bell.