Taper On? Taper Off?

Client Talking Points

US DOLLAR

I sent out the US Dollar short signal on its bounce to lower-highs (within bearish TREND) yesterday as I don’t think Ben Bernanke has the spine to taper in December. This is one of the few times I would be more than happy to be proven wrong. The Fed should have tapered 3 months ago.

UST 10YR YIELD

At 2.89%, it's game time again for the taper/no-taper position as the top end of my immediate-term risk range is 2.91%. Incidentally, that would be a lower-high versus the September highs in yields. There is no support to 2.77%.

JGBs

Shhh. Don’t tell anyone, but Japanese Government Bond Yields just rose 15% in a month. Yes, a whole 9 basis points from 0.59% to 0.68%. That is something to watch. Why? Simply because that rarely happens and it can flow through to driving global macro volatility. 

Asset Allocation

CASH 50% US EQUITIES 6%
INTL EQUITIES 6% COMMODITIES 6%
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

We might get one hell of a buy-the-damn-#DollarDown stock market pop next wk if Bernanke Burns The Buck @KeithMcCullough

QUOTE OF THE DAY

"Follow effective action with quiet reflection. From the quiet reflection will come even more effective action." - Peter Drucker

STAT OF THE DAY

An investor bought over $5 million in call options yesterday that will be profitable if the VIX jumps at least 50% in the next four months. The trader purchased 40,000 April calls on the VIX with a strike price of 22 for $1.28 each. The bullish volatility bet was the biggest single block of options to change hands on U.S. exchanges. The VIX rose 0.8% to 15.54 today. (Bloomberg)


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