All-Time Is a Long Time

Client Talking Points

UST 10YR

Dollar Up, Rates Up, Stocks Up – that’s the US growth signal I want to see. So, with rates backing off into yesterday’s close (at a lower-high on the 10-year yield with TRADE resistance now 2.92%), it’s a good time to take gross long exposure down and tighten your net some again. Incidentally, the SPX risk range now is 1835-1852.

GOLD

I’d be buying/covering Gold along that line of thinking again too (I’m risk managing Gold both ways using rates as my leading indicator). Gold is signaling higher-lows of support ($1233 then $1215) as the 10-year yield signals lower-highs.

#GrowthDivergences

Current growth divergences (one of our Q1 Macro Themes) is actually pretty obvious from a Global Equity market read-through perspective. In our model, it's all about the rate of change. And its relative too. Take a look around... Greece, Portugal, and Denmark up between 6-11% year-to-date. Now cast your eyes upon China, Japan and Brazil down 3-4% year-to-date. It makes for a great macro tape for country picking equities.

Asset Allocation

CASH 27% US EQUITIES 18%
INTL EQUITIES 20% COMMODITIES 8%
FIXED INCOME 0% INTL CURRENCIES 27%

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

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.

Three for the Road

TWEET OF THE DAY

US stocks close at all time highs (again); I’d sell some of what you bought Monday on green @KeithMcCullough

QUOTE OF THE DAY

Courage is not something that you already have…Courage is what you earn when you’ve been through the tough times and you discover they aren’t so tough after all. -Malcolm Gladwell

STAT OF THE DAY

China’s holdings of U.S. Treasuries increased $12.2 billion to a record $1.317 trillion in November. (Bloomberg)


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