What a Year

Client Talking Points

JAPAN

The Nikkei closes its year up +0.7% at the year-to-date high of 16,291 up +59.3% as the Yen goes out on its year-to-date lows south of $105 (down -18% vs US Dollar). Bottom line: Get the Yen right, you’re still getting Japanese stocks right.

10YR UST

The 10-year Treasury is stiff-arming the US growth bears with a 3% handle again this morning. Putting that into its proper context (it's either +26 basis points month-over-month or +130 basis points year-over-year) this was a big move. The question now becomes do we breakout above this 3% level that the bond bull lobby hasn’t sanctioned? More to be revealed.

METALS

Nope. Precious metals do not like #RatesRising. Silver is down -1.8% this morning and Platinum (we shorted it in Real-Time Alerts on Friday) and Gold are down -0.9% and -0.7%, respectively. My immediate-term risk range says 10-year yield 3.05% and Gold $1179. Incidentally, the SPX risk range is 1817-1859. Higher-lows and higher-highs remain bullish until they aren’t.

Asset Allocation

CASH 40% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 30%

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

US Stocks last wk: SP500 and Russell2000 +1.3% each to +29.1% and +36.7% YTD respectively @KeithMcCullough

QUOTE OF THE DAY

"If you have zest and enthusiasm you attract zest and enthusiasm. Life does give back in kind." - Norman Vincent Peale

STAT OF THE DAY

Got Fear? The VIX continued its 2013 crash last week. It was down -9.6% week-over-week and down over -30% year-to-date.