Client Talking Points
One of our themes is already playing out in Asian versus European Equities. In other words... #GrowthDivergences. After another rough market ride last night, here’s the year-to-date score for Asian Equity majors: China -4.2%, KOSPI -3.3%, Nikkei -2.5%. Not pretty. Meanwhile Denmark and Austria +4.7%.
Eurozone sentiment just tagged the 100 line in December (that's a new high) versus 98.5 in November. At the same time, the EUR/USD held our Hedgeye TREND support of $1.35 like a champ. We will review our bullishness on European growth at 11am during our Q1 Macro Themes call. It's undeniable at this point that European economic data continues to accelerate.
Right on time... the taper and bubble talk in the Fed Minutes (all hawkish on the margin) are driving the short end of the curve to new 3 month highs. We're seeing 0.42% 2-year Treasury yield this morning. Meanwhile, there's no resistance on the 10-year yield to 3.05% ahead of the jobs report.
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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.
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 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
QUOTE OF THE DAY
"Success or failure is caused more by mental attitude than by mental capacity." - Walter Scott
STAT OF THE DAY
T-Mobile added 4.4 million customers in 2013 -- its biggest growth in eight years. The company says it's proof its "uncarrier" strategy -- aimed to upend the mobile industry -- is working after only 8 months. In Q4 T-Mobile added 1.6 million new subscribers, bringing its total customer base to nearly 47 million people. (CNN)