Global Macro Doesn't Sleep

Client Talking Points

EUROPE

While the day after Thanksgiving is historically the lowest volume trading day of the year, there has actually been some important data out over the last 24 hours including: 1) Euro-area unemployment dropping to 12.1% from 12.2% in October and Eurozone flash CPI coming in at a anemic 0.9% (but higher versus last month’s 0.7%). Also, German retail sales came in at -0.8% month-over-month versus and estimate of +0.5%. These big macro data points don't point to any reason for European policy makers to change their views. If anything, there's only increased support for the current extremely dovish policies that are in place.

JAPAN

Last week we encouraged investors to consider taking off the Abenomics trade. As our analyst Darius Dale pointed out, there are a number of reasons to consider booking gains. 

  1. The Fed will likely dominate headlines with surprising levels of dovish monetary policy amid a 3-6 month monetary and fiscal policy vacuum in Japan;
  2. Sentiment towards Japanese equities amongst foreign speculators has reached euphoric levels; and
  3. Speculators have recently adopted an overwhelmingly bearish position on the yen. Historically, the USD/JPY cross has faded hard from such asymmetric setups in the futures and options market. Moreover, what’s bullish for the yen has been almost perfectly bearish for Japanese stocks.

Asset Allocation

CASH 42% US EQUITIES 8%
INTL EQUITIES 8% COMMODITIES 8%
FIXED INCOME 8% INTL CURRENCIES 26%

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

Just keep moving out there and take what these bubbles are going to give you. Don't get piggy. @KeithMcCullough

QUOTE OF THE DAY

"Everyone thinks of changing the world, but no one thinks of changing himself." - Leo Tolstoy

STAT OF THE DAY

Americans consume approximately 46 million turkeys on Thanksgiving Day compared to 22 million at Christmas and 19 million at Easter. 88% of Americans ate turkey this year. (Benzinga)



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