Looking In The Rear-View Mirroe

Client Talking Points

US DOLLAR

Alas, GDP is a lagging indicator. So... as the 10-year yield makes a lower-high versus the Q313 top, look at what Mr. Market is telling you via the leading indicator in our model: The US Dollar. The greenback is down for four consecutive weeks now after being down -0.41% yesterday. #broken

UST 10YR YIELD

Levels matter versus the prior high. If the 10-year yield can’t make a higher high versus the pre-Fed-no-taper September closing high (and we get anything average in an employment report), no-taper can knock 20-30 basis points out of this rate rally. Fast.

UK

Just awesome. Both home prices (+7.7% year-over-year in November versus 6.9% in October) and autos (+7% November versus +4% October) are loving what Americans loved in Q2-Q3 of 2013. What's that? Strengthening purchasing power via a #StrongCurrency. Go Pound.

Asset Allocation

CASH 38% US EQUITIES 12%
INTL EQUITIES 14% COMMODITIES 4%
FIXED INCOME 8% INTL CURRENCIES 24%

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

3.6% GDP and +200k handles on jobs and these morons are going to try no-taper again @federalreserve

QUOTE OF THE DAY

"I knew if I didn't leave my bitterness and hatred behind, I'd still be in prison." - Nelson Mandela

STAT OF THE DAY

Most British workers under 50 will have to work longer than expected after the government unveiled plans to introduce the highest retirement age in the developed world. Under the reforms, the pension age will be linked to rising life expectancy and reflect the U.K. government's belief that workers should spend no more than a third of their adult life in retirement. The state pension age of 68 will now be enforced in the mid 2030s, about 10 years earlier than planned. And by the late 2040s it will rise to 69.


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