What's That Smell?

Client Talking Points

JAPAN

The problem with Bernanke's Buck Burning (for Japan) is that equals Yen up. And Yen up means Nikkei down. Witness Japanese stocks down 1.6% overnight after snapping its immediate-term TRADE line of @Hedgeye 15,242 support. The Net short (futures/options) position in Yen is -129,614 contracts. Currencies have consequences.

GERMANY

After another rock solid economic data point (German PMI for December rose to 54.2 versus 52.7 in November), they are back buying the DAX after it held @Hedgeye TREND support of 8876 last week. Euro up, DAX up was losing its correlation, so let’s watch this today.

EUR/USD

After a modest correction, the Euro continues to power forward again this morning. That makes sense – on the margin Q4 German data is better than the US data (still accelerating versus US #GrowthSlowing). Oh yeah, one other thing... they don’t have Bernanke or Janet Yellen.

Asset Allocation

CASH 44% US EQUITIES 8%
INTL EQUITIES 8% COMMODITIES 8%
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

WSJ says market "not in a bubble" - got it

@KeithMcCullough

QUOTE OF THE DAY

"Logic will get you from A to B. Imagination will take you everywhere." - Albert Einstein

STAT OF THE DAY

Investors are dumping gold-backed exchange-traded products at the fastest pace since the securities were created a decade ago, mirroring the steepest price drop in 32 years. Holdings in the 14 biggest ETPs plunged 31% to 1,813.3 metric tons since the start of January, the first annual decrease since the funds started trading in 2003. (Bloomberg)


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