Client Talking Points
What we're witnessing right now is front-month volatility continuing to make a series of higher-lows as the U.S. stock market year end performance chase delivers higher-highs on lower-volumes. This rarely ends well for those forced to buy and cover high. Don’t do that.
After another +0.9% week versus the US Dollar last week, the British Pound powers forward again this morning as the UK printed the best sequential PMI print for November in Europe (see 58.4 versus 56 in November). We like the Euro, but we like the Pound even more.
The 10-Year Treasury Yield is up +5 basis points to 2.79% and Gold (still) does not like #RatesRising. The 10-year continues to frustrate people looking for a big breakout or breakdown as it simply trades in a 30 basis point range. This week should mark the high on US Growth consensus expectations. Incidentally, Q313 should be the top in GDP, and that’s reported on Thursday.
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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
TWEET OF THE DAY
Show me a strong currency running over Keynesian policy makers, and I'll show you a country I like @KeithMcCullough
QUOTE OF THE DAY
"The dictionary is the only place where success comes before work." - Mark Twain
STAT OF THE DAY
Heavy discounting took a toll on U.S. retail sales during the Thanksgiving weekend as shoppers spent almost 3% less than they did a year earlier. The National Retail Federation estimated the average shopper spent $407.02 over the weekend, or 3.9% less than during the same weekend last year, because of lower prices it said would persist through the rest of the season.