Client Talking Points
They finally opened the Japanese stock market and it got tagged on up Yen. The Nikkei starts the year -2.4% as the crowd leans very long of it (and short Yen – futures/options contracts show a massive net short position of -143,384 Yen contracts).
It's more #GrowthSlowing economic data out of China (Services PMI down to 50.9 in December versus 52.5 November). That took the Shanghai Composite down another -1.8% overnight to -3.3% to start 2014 year-to-date (versus -3.9% all in in 2013).
The biggest loser in Global Macro next to Thailand stocks last week was Oil (WTI -6.3%, Brent -4.7%). The US Dollar was +0.5%. That of course is a good thing for Consumption (US Consumer Discretionary was up +0.1% (XLY) on a down -0.5% S&P 500 week); Oil VIX ripped +31% on that over 20. Brent is back below our Hedgeye TAIL resistance of 108.89.
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Top Long Ideas
Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL. So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.
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 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.
Three for the Road
TWEET OF THE DAY
TREASURIES: 2.98% 10yr sitting right in the middle of a manageable 2.90-3.08% risk range @Hedgeye
QUOTE OF THE DAY
"The greatest mistake you can make in life is to be continually fearing you will make one." - Elbert Hubbard
STAT OF THE DAY
The world’s biggest economies will need to refinance $7.43 trillion of sovereign debt in 2014 as bond yields begin to climb from record lows, threatening to raise borrowing costs while nations struggle to bring down elevated budget deficits. Bloomberg