Mother of All Doves

Client Talking Points

US Dollar

The greenback was back down yesterday on the heels of a #GrowthSlowing ISM Services report in the USA. That piece of economic news increases market speculation that Janet Yellen will back off on Fed taper talk – she is the Mother of All Doves, don’t forget. The US Dollar Index fails @Hedgeye TAIL resistance of $81.12.

UST 10YR

The 10-Year Treasury yield holds yet another higher-low (and every line of support that matters in my model) at 2.96% ahead of the US employment report. There's no resistance to fresh highs of 3.05%. So yes, we’ll stay short Gold on that. $1185 support on that.

EUROPE

Simple math: If the Buck Burns, Euros win. It's hard for Keynesians to get this, but UK auto sales just hit their highest level since 2007 on a #StrongPound too. Why? A strong currency means strengthening confidence and higher European consumption growth. #EuroBulls.

Asset Allocation

CASH 30% US EQUITIES 16%
INTL EQUITIES 18% COMMODITIES 6%
FIXED INCOME 0% INTL CURRENCIES 30%

Top Long Ideas

Company Ticker Sector Duration
GHL

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.

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.

Three for the Road

TWEET OF THE DAY

Yellen’s Senate confirmation vote (56-26) was the worst in Fed history – that’s progress @KeithMcCullough

QUOTE OF THE DAY

"Hell, there are no rules here - we're trying to accomplish something." - Thomas Edison

STAT OF THE DAY

Forget about Las Vegas. Macau has cemented its status as the undisputed heavyweight champion of the gambling industry. The Chinese territory reported gambling revenue of 360 billion patacas ($45 billion) for 2013, an increase of almost 20% over the previous year. If that sounds like a lot of cash, it is. Las Vegas will be lucky to make $6.5 billion, or 15% of Macau's total. (CNN)