Embrace Uncertainty

Client Talking Points

CHINA

Most of Asia is closed. But Chinese stocks closed up +0.88% to close out the year in the bottom portion of our Global Equities League table at down -3.9% year-to-date. Why? Simple. #GrowthSlowing. That was the call there. Get the slope of growth correct, and it's easier to get country asset allocations correct.

UST 10YR

Here we are at 2013 year end and US 10 year yield will go out at its year-to-date highs. So much for the whole #RatesRising is going to "kill the stock market" thing. Instead, the growth expectations embedded in a +4.12% GDP print perpetuated all-time highs for growth investing (to be sure - US growth stocks, not Gold or bonds).

POUND

The British Pound is still our favorite currency in the world. It is tracking to new highs here this morning at $1.652 versus the US Dollar. And while it is immediate-term TRADE overbought within its $1.63-1.65 risk range, this is breaking out of a 65 year base, don’t forget! Keep calm, carry on...

Asset Allocation

CASH 37% US EQUITIES 15%
INTL EQUITIES 15% COMMODITIES 3%
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

Its been a great year – thanks for putting up with me and best of luck and health to u, your families, and firms in 2014 @KeithMcCullough

QUOTE OF THE DAY

"When the fight begins within himself, a man's worth something." -Robert Browning

STAT OF THE DAY

Gold futures retreated 28% this year to $1,201.60 an ounce, poised for the first loss since 2000 and the biggest since 1981. Meanwhile, investors pulled $38.6 billion from gold funds this year, the most in data going back through 2000, according to EPFR Global, a research company.



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