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Client Talking Points

US DOLLAR

The Dollar is down for FIVE weeks in a row now. It is officially in a Bearish Formation as the Federal Reserve whispers sweet nothings of having a policy that is clearly not data dependent. Across the pond, both the Euro and Pound are loving this lack of US currency credibility. On the margin this is good news for European purchasing power.

OIL

Shhh. Don’t tell the Fed, but that Down Dollar? It's kick-starting that ole 2011-2012 style inverse correlation to Commodity Inflation again. Brent Oil versus US Dollar has an inverse correlation of -0.66 now on a 6 week duration. Both Brent and WTIC are up about 1% this morning after Brent held our Hedgeye TAIL risk support of $109.07/barrel. We covered our Oil short yesterday.

10YR UST YIELD

Not to be confused with data dependence, the Federal Reserve has a policy outcome that will stand, irrespective of the data. If that means a lower-high for bond yields (versus the September pre-no-taper highs), the 10-year could easily drop 20 basis points from here. We're watching 2.80% as an immediate-term momentum line.

Asset Allocation

CASH 42% US EQUITIES 10%
INTL EQUITIES 12% 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

GOLD: continues to make a series of higher-lows (vs June) and we remain long of it @KeithMcCullough

QUOTE OF THE DAY

"Don't count the days, make the days count." - Muhammad Ali

STAT OF THE DAY

The average cost of tuition and fees at a public, four-year institution for an in-state student is $8,093. At a private four-year university, tuition and fees are more than $30,000. (MarketWatch)