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2014. Welcome.

Client Talking Points

ASIA

It was an ugly session for Asian stocks which kicked off 2014 with Thailand down -5.2%; KOSPI in South Korea down -2.2% (it broke its Hedgeye TREND); India down -1.3% and China down -0.3% (after being down almost -4% for 2013.) What's that all about? Inflation expectations rising are not good for Asian growth.

SILVER

So, Silver is up over +3% to start the year after totally crashing in 2013. It's leading the whole inflation expectations rising move this morning as Oil, Copper, etc. are all showing some follow through from what was a strong December of price performance. Thankfully, we covered our Platinum short on red.

UST 10YR

No, it's not normal for the 10-year to stay pinned up here and also have precious metals rally. But there’s no such thing as a perpetual normal in macro, so embrace it. 3.03% on the 10-year is signaling more of the same (higher-lows and higher-highs for yields)

Asset Allocation

CASH 50% US EQUITIES 10%
INTL EQUITIES 10% COMMODITIES 3%
FIXED INCOME 0% INTL CURRENCIES 27%

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

Yield Spread (10yr minus 2yr) widens out to a fat +265bps for the Financials $XLF #bullish @KeithMcCullough

QUOTE OF THE DAY

Every man should be born again on the first day of January. Start with a fresh page.” -Henry Ward Beecher

STAT OF THE DAY

The richest people on the planet got even richer in 2013, adding $524B to their collective net worth, according to the Bloomberg Billionaires Index, a daily ranking of the world’s 300 wealthiest individuals. Bill Gates was the biggest gainer. The 58-year-old tycoon’s fortune increased by $15.8B to $78.5B, according to the index, as shares of Microsoft rose 40%. (Bloomberg)

 


TOP READ NOTES: DECEMBER 2013

Takeaway: Below we rank our top read notes from December. Click the note title for access.

TOP 10 MOST READ NOTES: DECEMBER 2013

  1. 12/19/13 – Best Idea Update: Short PNRA
  2. 12/19/13 – DRI: Not Enough
  3. 12/20/13 – DRI: Clarence’s Legacy, A Half-Baked Plan
  4. 12/18/13 – SBUX: Losing A Little Momentum
  5. 12/09/13 – MCD: Rebuilding Not Strengthening
  6. 12/17/13 – Best Idea Update: Long DRI
  7. 12/03/13 – KKD: Déjà Vu (Buy The Dip)
  8. 12/05/13 – Casual Dining Anomaly
  9. 12/04/13 – YUM Analyst Day
  10. 12/11/13 – Restaurant Impossible: Fixing Olive Garden

Feel free to contact us if you have any questions, or would like to discuss any of our work in more detail.

 

 

Howard Penney

Managing Director

 


THE M3: GGR, S'PORE GGR; H9N2 BIRD FLU

THE MACAU METRO MONITOR, JANUARY 2, 2014

 

 

DECEMBER 2013 GGR DSEC

Macau GGR reached a new record of 33.46BN MOP (32.48 BN HKD, 4.19 BN USD) in December, 18.5% YoY growth (consensus +13.6%)

 

SINGAPORE'S ECONOMY GROWS 4.4% ON-YEAR IN Q4 2013 Channel News Asia

According to advance estimates from the Ministry of Trade and Industry, the Singapore economy grew 4.4% YoY in 4Q 2013.  On a quarter-on-quarter basis, the economy contracted by 2.7% in 4Q.

 

HK CONFIRMS H9N2 HUMAN INFECTION Macau Daily Times

A rare case of a human contracting H9N2 bird flu was detected in HK yesterday, according to the HK health authorities.  An expert in HK said that the virus does not spread to humans easily, and that there is currently no evidence of human transmission.  The Macau Health Bureau warns that the flu virus could become active again as temperatures decline.


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Ask For The Truth

“If any man seeks for greatness, let him forget greatness, and ask for the truth – and he will find both.”

-Horace Mann

 

There’s a blizzard rolling in on the East Coast this morning and they’ll be legally selling pot in Colorado today. Welcome to 2014.

 

Last year I had a well known pundit tell me I wasn’t being “truthful” about US #GrowthAccelerating. The truth is US growth accelerated from +0.14% in Q412 to +4.12% by Q313. So I thought I’d start with the weather this morning. It’s tougher to obfuscate.

 

One thought I’ll share with our team in this morning’s New Year’s meeting will be to Breathe and Be Yourself. That’s a subtitle to a solid chapter in Unusually Excellent titled “Being Authentic” where John Hamm reminds us that “authenticity is the first step of leadership… because it is the basis for the kinds of trusting relationships with followers…” (pg 27). Ask yourself for the truth, every day.

 

Back to the Global Macro Grind

 

While we may not always be positioned for it, in this game last price is truth. We can argue with it, twist it, call it names – but that won’t change what it is. It’s the score.

 

Check out some of this morning’s Day 1 of 2014 scores:

  1. Thailand’s stock market -5.2%
  2. South Korea’s stock market -2.2%
  3. India’s stock market -1.3%
  4. Greece’s stock market +2.6%
  5. United Arab Emirates stock market +3.0%

#Fun. We call this a big macro day of #Divergence in Global Equities.

 

In commodity land, there are some interesting price % moves as well:

  1. Silver +3.2%
  2. Platinum +1.6%
  3. Wheat +0.8%

In other words, 3 of the commodities that experienced the biggest crashes in their 2013 prices are up more than mostly every commodity and stock market in the world today. We call this a nice bounce (to lower-highs).

 

Then alongside the #PotShops thing in Denver, you have some other social truths to consider in Japan this morning:

  1. Japan’s population growth (lack thereof) showed its largest decline on record in 2013 (-244,000)
  2. Japanese births were -6,000 y/y and deaths were -19,000 y/y in 2013, allegedly (hard for us to get to these #s)

But don’t worry, after opting for the Burning of The People’s Purchasing Power (their hard earned currency was -17% in 2013), the Japanese stock market was +59.3%. So some people crushed it in Japan; some people got crushed.

 

What do all these truths mean? And are they in fact truths? What if the birth/death calculation in Japan is as suspect as it is here in the US? However suspect the data, our working assumption here @Hedgeye is it’s apples to apples, suspect vs suspect.

 

Accepting the last market price as truth is a lot easier than taking conflicted and compromised government data at face value. The aforementioned 8 price moves in global equities and commodities, combined with what was already starting to move COUNTER-TREND in December, leads my macro craw to the same potential Global Macro Theme: Inflation Expectations Rising.

 

Stay tuned for our Q1 2014 Global Macro Themes call in the coming weeks where we’ll try our best to contextualize a developing truth (last price vs. market history) and what it could mean for your asset allocation and positioning.

 

Our immediate-term Global Macro Risk Ranges are now as follows (bullish or bearish TREND duration in brackets):

 

UST 10yr yield 2.97-3.07% (bullish)

SPX 1 (bullish)

Gold 1180-1223 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Ask For The Truth - Chart of the Day

 

Ask For The Truth - Virtual Portfolio


January 2, 2013

January 2, 2013 - Slide1

 

BULLISH TRENDS

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BEARISH TRENDS

January 2, 2013 - Slide10

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January 2, 2013 - Slide12

January 2, 2013 - Slide13


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