CLIENT TALKING POINTS
YEN
Got beta on that Correlation Risk? The Yen is down -0.3% and the Nikkei is up +1.9%. Yup, that’s the game you are in right now; so play it until these correlations burn off. This massive net short position in the Yen notwithstanding (currently -143,000 contracts), the risk range for USD/YEN is actually tightening. That’s bullish for the Yen, on the margin. We continue to watch this closely.
AUSTRIA
Stocks in Vienna lead European gainers up +1% this morning to +4.3% year-to-date. The reason I call that out is because that’s one of the top 2014 global equity performers. It's still early, but we will explain why parts of Europe should continue to follow Germany’s lead on tomorrow’s Q1 Global Macro Themes call.
OIL
Oil is up +0.2% this morning, but it's still bearish from a long-term TAIL risk perspective ($109.39 is a wall of resistance). All the while, Natural Gas (up another +1.1% this morning) continues to diverge bullishly. We will be writing more about Oil verss Natty (and shale) in the coming weeks.
TOP LONG IDEAS
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
We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.
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.
Asset Allocation
| CASH | 35% | US EQUITIES | 15% | |
| INTL EQUITIES | 17% | COMMODITIES | 6% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 27% |
THREE FOR THE ROAD
TWEET OF THE DAY
I disagree with $GS's recommendation to reduce exp to developed markets today; less importing means a stronger dollar @hedgeyeJC
QUOTE OF THE DAY
"Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won't come in." -Isaac Asimov
STAT OF THE DAY
Unseasonally cold weather in the U.S. has led to at least 21 deaths and resulted in freezing temperatures in all 50 states on Tuesday, according to reports.