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

July 14, 2014

Timely perspectives from the 361 Capital research & portfolio management team

Written by Blaine Rollins, CFA

(ColtForney)

As so often happens this time of year, just when you are setting out the picnic basket, a storm arrives…

Last week’s storm cell included a troubled Portuguese Bank, some less than expected European economic data points, an exploded Potbelly stove and a bankrupt cupcake shop in Manhattan; you can decide as well as the experts as to which was more meaningful to the markets. But with a market trading at all-time highs into an earnings period on a slow summer week, almost anything could be blameful, even an extinct Red Velvet cupcake.

For the week it was interesting to see the run for safety into Bonds, Metals/Miners and Brazil(?), and out of Europe, Energy, Ag Commodities, and Small Caps. While one week does not make a trend, keep a close eye on those decliners…

German 10 year yields moving to new lows shows not only the ECB talking up accommodation, but now also a flight to safety away from the periphery countries…

Equity weakness in the Eurozone was intensified by a brief scare over Banco Espirito Santo in Portugal. The bank’s parent company missed a debt payment, throwing into question the bank’s exposure and potential solvency. German 10-year bond yields fell to fresh lows as peripheral debt sold off surrounding these events. German yields are now retesting the lows from April ’13.

(StevenPytlar/PrimeExecutions)

Among the U.S. sectors, Financials and Industrials are toying with 2014 relative lows versus the S&P 500 which is not what a healthy bull would like to see…

(StockCharts)

For best performing, look no further than the Technology sector. Here are the top XLK components…

(StockCharts)

Agree fully. GMO’s forecasts are always important to keep in mind…

@researchpuzzler: you don’t need to agree with GMO’s forecasts, but they are a good reference point

Barron’s runs a solid cover story and gives you a basket full of Retail stock takeover ideas. And if the buyouts don’t hit every name, the consumer economy could still help the remaining stock prices…

The biggest summer sale this year isn’t in stores, but in the stock market. The six worst performers year to date in the Standard & Poor’s 500 are all retailers, and their shares are down as much as 39%… The precipitous drop in retailers’ shares has multiple causes. Aside from the affluent, Americans have reined in their spending, resulting in heavy promotions and reduced profitability for many chains. The threat from Amazon.com and other Internet-focused retailers also is an overhang. Still, bargain hunters are starting to gravitate to the sector, and so are activist investors. Carl Icahn bought a 9% stake in Family Dollar Stores in May and urged a sale of the company, while Jana Partners amassed a 10% position in PetSmart earlier this month and said the pet-oriented retailer should consider putting itself up for sale. Flush with $1 trillion of investment firepower, private-equity firms also are eyeing retail, a favorite hunting ground in the past; because there is less competition for deals from strategic buyers and financial ones often see opportunities to work operational magic.

(Barron’s)

Speaking of retail, Grocery stocks LOVE food inflation…

(BusinessWeek)

Op-Ed of the Week = Why does Congress want to increase U.S. inflation rates and export jobs that are critical to our future growth?

“We believe it borders on insanity to train intelligent and motivated people in our universities — often subsidizing their education — and then to deport them when they graduate. Many of these people, of course, want to return to their home country — and that’s fine. But for those who wish to stay and work in computer science or technology, fields badly in need of their services, let’s roll out the welcome mat.” Sheldon Adelson, Warren Buffett and Bill Gates

(NYTimes)

And it is not just highly educated jobs which could drive U.S. inflation higher…

Something strange is afoot in long-distance trucking that is also bedeviling other industries: Many jobs that pay well—and don’t require expensive degrees—are going unfilled for months… Trucking firms, while accustomed to high driver turnover, say hiring is tougher than ever. “It’s probably the most difficult recruiting environment… I’ve seen in my 26 years in the business,” said Scott McLaughlin, president of Stagecoach Cartage & Distribution LP, a family-owned firm in El Paso, Texas. About 100 of Stagecoach’s 250 employees are long-distance drivers—and retaining them is as hard as recruiting. “Every driver I’ve got could leave here today and have any number of jobs,” Mr. McLaughlin said.

(WSJ)

Speaking of job openings, last week’s JOLTS survey climbed to its highest since June 2007…

The number of job openings in the U.S. economy climbed to the highest level in 7 years, even as the number of people being hired was little changed from recent months, according to the Department of Labor‘s monthly job openings and labor turnover survey, known as JOLTS. Employers were seeking to fill more than 4.6 million jobs in May, up from 4.5 million the month before, according to the survey. The last time so many jobs were open was June 2007. The rate of hiring was little changed for the fourth month in a row, with about 4.7 million workers starting new jobs.

(FusionMarketSite)

Why you care about the trend in job openings…

@SoberLook: Chart (from Credit Suisse): Ratio of US job vacancies to unemployed workers vs. 2-yr treasury yield –

Few can now say that soccer is a boring sport. What a great 5 weeks of World Cup action…

@CNNFC: BREAKING: GERMANY WINS THE 2014 #WORLDCUPFINAL #GER 1-0 #ARG

@BillWeirCNN: Merkel’s heart rate jumps and some guy at NSA headquarters grabs his headphones in pain.

@Podolski10: Selfie 2… 🙂

Advertising Fail of the Month…

Commissioned by Singapore’s National Council on Problem Gambling, the ad was meant to “deter gamblers from gambling irresponsibly during the World Cup,” according to local ad agency Goodfellas, which produced the campaign.

(WSJ)

Finally, the best thing I read last week, “God loves Cleveland” by Bill Simmons…

“He’s smarter about basketball than you and me, and, really, anyone else. He sees things that we can’t see. During that last Miami season, I don’t think he liked what he saw from his teammates. LeBron James wanted to come back to Cleveland, but he also wanted to flee Miami. His heart told him to leave, but so did his brain. And his brain works like very few brains — not just now, but ever.”

(Grantland)

Blaine Rollins Returns To Fund Management

361 Capital recently launched the 361 Global Macro Opportunity Fund, which will be team managed and led by Blaine Rollins, author of the Weekly Research Briefing.

Learn more about this new Fund.

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.