Client Talking Points
If you wanted to short a major equity market for a real correction, you should have tried a whirl on the Nikkei for 48 hours. Japan was down -1.5% overnight. It's down -3.7% in 2-days after the YEN stopped going down versus the US Dollar. Global macro matters.
So in spite of that European Central Bank cut, the Eurocrats just can’t seem to keep the Euro down versus the US Dollar. Why? Because Ben Bernanke is prepping his academic turkeys for more no-taper basting. Who cares what the economic data says? That scent in the air is the smell of #BurningBucks.
What's that? #RatesRisingagain? Yes.. to 2.83% (Gold down -0.8% this morning, it no likey rising rates). So, Bill Gross and the bond guys over at PIMCO and the New York Fed better intervene soon. After all, our unelected central planners at the Federal Reserve must never let economic gravity get in the way of good dogmatic storytelling. #Sad. On a related note, SPX risk range is now 1788-1815. Time to buy and cover (again).
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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
Devalue The Dollar and crush seniors starving on fixed savings w/ 0% rates (and talk "income disparity") @BarackObama
QUOTE OF THE DAY
"Great minds talk about ideas, average minds talk about events, and small minds talk about people." - Eleanor Roosevelt
STAT OF THE DAY
Bond prices fell yesterday, sending the 10-year note's yield to as high as 2.852%, nearing the 3% mark touched this past summer when investors bet the Fed would retreat from buying Treasury and mortgage bonds at its September policy meeting. (WSJ)