About That No-Taper Trade...

Client Talking Points

ASIA

Witness the broad-based selling in Asian Equities overnight (Hong Kong down -1.7%, China down -1.5%, KOSPI down -0.8%). Why? The world’s growth expectations are getting rightly concerned about importing inflation via a renewed USA Burning Buck strategy (“sequester relief!”). The US Dollar is down for FIVE straight weeks. Atta boy Bernanke. No-taper is killing whatever was left of Fed credibility.

INFLATION

It's back! After bottoming in mid-November, one proxy for global inflation (CRB Commodities Index) has put in a big +3% move off the year-to-date lows (the CRB Index was down -8% year-to-date on the lows, fueling real-consumption growth). Almost every major economic region (other than Europe because they have #StrongCurrency) will see inflation pickup sequentially in Q1 verses Q4.

GOLD

Being long no-taper/inflation expectations is cool, but only to a price. After crashing this year, the price of Gold will take time to bottom. (Remember, it’s a process, not a point). We sold our trading position in Gold at the top-end of our immediate-term $1216-1261 risk range yesterday. We will buy it back if it confirms another higher-low on this pullback.

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

COMMODITIES: Burning Buck continues to re-fuel the commodity inflation bubble @KeithMcCullough

QUOTE OF THE DAY

"Confidence comes not from always being right but from not fearing to be wrong." - Peter T. McIntyre

STAT OF THE DAY

Budget deal? The U.S. national debt is approaching $17,224,000,000,000.



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