Contrasting Winners & Losers

Client Talking Points

ASIA

That smell you’re smelling? It’s Asia from an equity market perspective. It stinks.  All the majors have major issues. Despite what’s been a pretty decent week for US stocks, Asian stocks evidently did not care. Just go down the Asian line for 2014 year-to-date. China is down -5.3%, Japan is down -3.4% and South Korea is down -3.3%. 

UK

UK economic data looks nothing short of fantastic. Check out the retail sales number ripping +5.3% year-over-year in December; that’s versus 2% in November (which itself was a good number). Note to Keynesians who burn currency: Strong pound? It’s a good thing. Strong purchasing power? Good thing.  Incidentally, European stocks continue to crush it year-to-date. Check out Spain, up another +0.3% this morning to +6.4% year-to-date. Yes, we stand by our #EuroBulls Macro Theme. Bottom line is it’s been a fantastic start of the year in Europe. 

S&P 500

Look at Consumer Discretionary (XLY) and even Consumer Staples for that matter. Both of them are broken now from an immediate-term trade perspective in our Hedgeye model. This is A) new news and B) bad news. The XLY is down -2%. That stands in stark contrast to Healthcare which is up 3%. 

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
DRI

Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

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.

Three for the Road

TWEET OF THE DAY

In hindsight, this $RH selloff will prove to be one of the best buying oppties this year in retail. Liked it a lot at $28. Love it at $57. @HedgeyeRetail

QUOTE OF THE DAY

"I know where I'm going and I know the truth, and I don't have to be what you want me to be. I'm free to be what I want." -Muhammad Ali

STAT OF THE DAY

Sochi is preparing to host the most expensive Olympic Games ever at a cost of about $50 billion. The staggering price tag, which includes a major upgrade to Sochi's infrastructure, outstrips the $40 billion China is thought to have spent on the Beijing Summer Games. And it's more than three times the cost of London 2012. (CNN)


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