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Client Talking Points

US DOLLAR

With the Wall Street Journal's Jon Hilsenrath passing along the "super duper" secret information that the Fed isn’t one and done on the whole #taper thing, the US Dollar and Rates are up this morning (versus down Friday, which meant stocks down). You already know that I like the Fed tapering. It's long overdue. Yes - it's bearish for bonds and bullish for stocks (see our #FlowShows Macro Theme for Q114).

UST 10YR

The 10-Year Treasury yield is up 3 basis points this morning to 2.85% after testing and holding our Hedgeye TREND support of 2.76%. Higher-lows are bearish form bonds, but the broader breakout to higher-highs in yields over 3.05%? It isn’t in the cards. Yet.

GOLD

Well, Gold certainly loved the down bond yield move last week (and year-to-date for that matter) and does not like bond yields up this morning. This is how Gold is trading... with rates. The risk range is now $1220-1267 with the 10-year yield range of 2.76-2.89%, immediate-term.

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

Goldman making the call we did on $SBUX, 2.5 months ago @HedgeyeHWP #OldWallDelay @KeithMcCullough

QUOTE OF THE DAY

"Confidence comes not from always being right but from not fearing to be wrong." - Peter T. McIntyre

STAT OF THE DAY

The poorest half of the world’s population—3.5 billion people—control as much wealth as the richest 85 individuals. (Businessweek)