CLIENT TALKING POINTS
EUROPE
Swiss and German stocks rising +1% and leading the follow-through charge this morning (in spite of continued weakness across major Asian Equity indices ... see the KOSPI down another -0.4% overnight). Take some time today or over the weekend to review our Q1 Global Macro Themes Deck from yesterday on the why that could continue.
CHINA
Whack! The Shanghai Composite fell down another -0.7% last night to -4.9% year-to-date (compare that to Austria which is up +5% year-to-date). We have no interest in being long China’s major equity index here on the red start to the year. Incidentally, New Zealand up +2.7% year-to-date looks good!
UST 2YR
What a start for the short-end of the yield curve with fresh 3-month highs of 0.43% for the 2-year. We will see if the reaction to the jobs report is enough to blast through the September highs again for the 10-year yield today. There's no resistance to 3.05%, then 3.09% after that on the 10s.
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 | 30% | US EQUITIES | 16% | |
| INTL EQUITIES | 18% | COMMODITIES | 6% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 30% |
THREE FOR THE ROAD
TWEET OF THE DAY
CNBC's coverage of the jobs report has devolved into a lotto contest for anyone dumb enough to guess @KeithMcCullough
QUOTE OF THE DAY
"Talent wins games. But teamwork and intelligence win championships."
-Michael Jordan
STAT OF THE DAY
The data breach at Target was significantly broader than originally reported: The company said Friday that 70 million customers had information such as their name, addresses, phone numbers and e-mail addresses hacked in the breach. The company had previously said 40 million shoppers had their credit and debit card information stolen in the weeks following Thanksgiving.
