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Client Talking Points

YEN

Out of the majors, Japan reported the weakest Services PMI in the world last night at 48.5 for FEB (vs. 51.3 JAN) – that’s got to be good for some more Yen Burning and Weimar Nikkei bubbling. Looking to buy more Japanese stocks on that economic weakness, and the sad thing is that we’re not kidding – still looking for YEN 135 vs. USD intermediate-term.

EURO

Burn baby burn as EUR/USD probes a fresh year-to-date lows at $1.11 this morning now that most of the European PMI data was flat to slower. Italy reported one of the weaker Services PMI’s (50.0 vs 51.2 last month), so of course the Italian stock market is up on that in a down European equity tape! The ECB meeting is tomorrow.

UST 10YR

Unless someone has the jobs report in hand, we don’t know why bond yields are up this week (if we did, we would have told you to sell some Long Bond exposure pre the pullback). The UST 10YR Yield risk range is still wide at 1.88-2.17%; yields up on a good jobs report; down fast on a bad one – stay tuned. 

Asset Allocation

CASH 41% US EQUITIES 10%
INTL EQUITIES 10% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 9%

Top Long Ideas

Company Ticker Sector Duration
YUM

Our bullish thesis on Yum! Brands is slowly becoming more mainstream, as activist talk has recently heated up. Management implemented a shareholder friendly amendment to the company’s by-laws that will permit a shareholder, or group of shareholders, with 3% or more ownership of common stock (for three years or more), to nominate directors representing up to 20% of the board. This is good news for several reasons: 1) an activist may be involved in the name 2) shareholders are speaking up 3) management is feeling the pressure and 4) management is open to adopting more shareholder friendly policies. We continue to believe there is significant upside here despite the stock’s strong recent outperformance.  This stock is one major announcement away from hitting $95.

PENN

Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

Three for the Road

TWEET OF THE DAY

FLASHBACK | The Bear Case on $BABA: What The Street Is Still Missing https://app.hedgeye.com/insights/42722-flashback-baba-what-the-street-is-missing-on-alibaba

@KeithMcCullough

QUOTE OF THE DAY

Nothing is impossible, the word itself says, ‘I’m possible!

-Audrey Hepburn

STAT OF THE DAY

Android operating devices account for about 52% of the devices in the U.S. (compared to iOS at 42%), but only account for 22% of mobile sales.