Client Talking Points
Volatility made another higher-low last week (signaling a short-term SPY stop), but then it failed at Hedgeye TREND resistance of 14.92 yesterday. This is what we call a very manageable risk range for US Equities. The VIX is now overbought .
Witness the 3-day correction of -0.7%. That's called bear scraps.So keep moving out there or get mauled. Fund flows have been epic (and they haven’t been put to work). Bottom line is you want to be buying red and selling green… and looking mean.
We still like European growth equities more than U.S. equities right now. Germany (DAX) held our Hedgeye TRADE support of 9138 after another #GrowthAccelerating data point in the November Services PMI of 55.7 (versus 54.5 last month). #EuroBulls
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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
Remember the fear mongering in OCT about a US "Debt Default"? a consensus gift @KeithMcCullough
QUOTE OF THE DAY
"We don't see things as they are, we see them as we are." - Anais Nin
STAT OF THE DAY
U.S. private employers added 215,000 jobs in November, topping expectations, according to ADP, reinforcing expectations the Fed may soon begin to taper. Economists surveyed by Reuters had forecast the ADP Report would show a gain of 173,000 jobs. The high end of the estimates was 205,000. October's number was revised to 184,000 from the initially reported 130,000. (Reuters)