December Taper? Doubtful.

Client Talking Points

UST 10YR

10-Year Treasury yield down a beep this morning to 2.85% (and making a lower-high versus the year-to-date high in September when Bernanke went no-taper). So, if I have to handicap what the bond market thinks versus consensus “economists” (Bloomberg survey just went from 17% on December-taper to 34%), its still no-taper (there’s a -133,201 net short position in CFTC futures/options on the 10-year).

US DOLLAR

The Greenback is down for four straight weeks as Bernanke/Yellen devalue the Dollar. The Euro continues to breakout versus the US Dollar. So on the margin, the currency market thinks no December-taper too, despite there being a bigger net long position in USD than EUR currently.

GOLD

At +26,774 contracts, this is the lowest net long position (CFTC data) since June of 2007. It sounds about right now that 3.6% US GDP and #RatesRising are old news for 2013. If and when US growth slows in the next 3-6 months Gold could be a good contrarian long if the June 2013 lows of $1200 hold.

Asset Allocation

CASH 38% US EQUITIES 12%
INTL EQUITIES 14% COMMODITIES 6%
FIXED INCOME 6% 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

Yield Spread (10yr minus 2yr) is a healthy +255bps wide - bullish for the Financials $XLF @HedgeyeFIG

QUOTE OF THE DAY

"The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself." - George B Shaw

STAT OF THE DAY

China's annual consumer inflation unexpectedly slowed to 3% in November from an eight-month high of 3.2%, according to the National Bureau of Statistics, easing market fears of any imminent policy tightening as authorities meet this week to outline their policy and reform priorities for 2014. (CNN)


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