361 Capital Weekly Research Briefing

361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.

361 Capital Weekly Research Briefing
October 28, 2013

Timely perspectives from the 361 Capital research & portfolio management team
Written by Blaine Rollins, CFA



If you are LONG a diversified portfolio of assets, this is about the only RED that you have seen in October…

“Fall”

(Alfon No)

About the Markets…

The markets felt a bit different this week. While equities finished with another weekly gain, it was lead to new highs by a new and interesting cast of characters: the Dow Industrials, Dividend Stocks (like Utilities & Industrials), Germany, the United Kingdom, Gold & Silver, and Long Maturity Treasuries. While everyone under invested in risk is hoping for a pullback, the rest who are equal or overweight seem to be looking to buy on any pullback.

Remember 2 months ago when Long U.S. Treasury Bonds/Notes were toying with being 4 standard deviations oversold and Equities were catching a sympathetic cold? Well now with 1) Janet Yellen on board, 2) the lackluster recovery keeping the Taper at bay and 3) the Q3 earnings season looking successful, investors are broadening their risk appetite to include large sectors of the markets that have been left behind. Even investors in REITs, Homebuilders, and Utilities have taken a step back from the ledge. While we enjoy watching Elon Musk’s companies take share in the equity markets, we also know that it will be healthier for the markets in the long run if GE and Pfizer also join in on the wealth creation.

DOW THEORY EXCLAMATION POINT…

“IYT”

And with Transports being a subset of Industrials, the XLI is clearly leading the markets’ charge this Earnings period…

“ZLI”

Boeing wins by supplying the Transports (Airlines + UPS/FDX) & being a top stock in the top sector…

Remember when BA sold off on the 787/Dreamliner issues in July… 30% ago!

“BA”

As we are now through the peak week of earnings period, it is safe to reflect and call the season a success for the bottom line beats…

“Figure8”

And just as we saw during the Q1/2013 reporting season, analysts are lifting their estimates…

“Consensus”

Amazon’s business model accelerated in the Q3 and so did its stock price. If you are a permabear and underweight AMZN, read these thoughts from a former employee…

If Amazon has so many businesses that do make a profit, then why is it still showing quarterly losses, and why has even free cash flow decreased in recent years? Because Amazon has boundless ambition. It wants to eat global retail. This is one area where the press and pundits accept Amazon’s statements at face value. Given that giant mission, Amazon has decided to continue to invest to arm itself for a much larger scale of business. If it were purely a software business, its fixed cost investments for this journey would be lower, but the amount of capital required to grow a business that has to ship millions of packages to customers all over the world quickly is something only a handful of companies in the world could even afford… If I were an Amazon competitor, I’d actually regard Amazon’s current run of quarterly losses as a terrifying signal. It means Amazon is arming itself to take the contest to higher ground. The retail game is about to become more, not less, punishing.

(RemainsOfTheDay)

Among the Mega Caps hitting All Time Highs on Friday were some of the names posting better than expected earnings last week…

“Mulitple”

It wasn’t all positive last week as Energy and Financials saw some selling…

“NotallPositive”

Earnings were the driver to U.S. stock moves and indexes, while the more established markets in Europe drove their indexes higher for another week…

“MarketMovers”

Dan Loeb’s Third Point on Japan…

We believe Premier Abe has the best chance in over a generation to enact the reforms to push Japan forward. If he acts on these initiatives, we will be eager buyers of additional Japanese stocks beyond our significant investment in Sony and current holdings in other Japanese companies.

(FinancialTimes)

Gold + November Indian Wedding Season? I haven’t come across this relationship in the past, but the weekly chart suggests that someone is back in love with the yellow metal…

@RyanDetrick: November is hands down a strong one for $GLD and $GDX. I guess reason is Indian wedding season.

“GLD” “GLDSPDR”

The most important slide for a long term investor in Twitter…

If you saw eBay as more than a hobby collector’s trading website and Amazon as more than an online bookstore, then you will also see the potential of Twitter…

“Twitter”

(RetailRoadshow)

Institutional investors are accelerating their purchases of single family homes. In some cities, they are now a quarter of all purchases…

Institutional investors (purchasing 10 or more properties in the last 12 months) accounted for 14 percent of all sales in September, up from 9 percent in August and also 9 percent in September 2012. September had the highest percentage of institutional investor purchases of any month since RealtyTrac began tracking in January 2011.

“InstitutionalInvestor”

(RealtyTrac)

1/3 of Smartphone users do not password protect their phones. One of the easiest ways to take care of your clients’ finances is to get their households to 100% password protection…

Your smartphone is your most portable computer. It’s also a treasure trove of personal information. You wouldn’t leave your laptop unlocked in public, so why leave your phone unprotected? Lock up that data and encrypt it. Social media, budgeting and finance apps, photos, address book, and email — they’re all filled with details about you and the people you know. Yet for some reason a third of smartphone users in the U.S. still don’t bother setting up password security on their phones. It’s a shame because using a four-digit pin or a pattern lock is one of the easiest ways to keep thieves out of your phone. Trust us, the person that finds your phone in the back of a cab or swipes it from your open bag while you’re on the bus isn’t a criminal mastermind. On the other hand, they will be able to figure out from your emails when you’ll be on vacation and what time you leave for work.

(Wired)

When you step on a Lego man barefoot in the middle of the night, you might be interested to know…

“legoman”

(DailyMail)

Tweet of the week…

@NorthmanTrader: BREAKING: Merkel going breaking bad orders 20,000 pre-paid phones and large recycling bin.

And a great picture to follow…

“Audi”

Angela Merkel has not missed her start at the EU summit in our capital. The German Chancellor has arrived in a car with a meaningful Plate: ‘007 ‘, the code name of James Bond.

(HLN.be)

In the event that you missed a past Research Briefing, here is the archive…

361 Capital Research Briefing Archive

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Blaine Rollins, CFA, is managing director, senior portfolio manager and a member of the Investment Committee at 361 Capital. He is responsible for manager due-diligence, investment research, portfolio construction, hedging and trading strategies. Previously Mr. Rollins served as Executive Vice President at Janus Capital Corporation and portfolio manager of the Janus Fund, Janus Balanced Fund, Janus Equity Income Fund, Janus Aspen Growth Portfolio, Janus Advisor Large Cap Growth Fund, and the Janus Triton Fund. A frequent industry speaker, Mr. Rollins earned a Bachelor’s degree in Finance from the University of Colorado, and he is a Chartered Financial Analyst.

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