Client Talking Points
After a horrendous run of economic data, the People's Bank of China jacks 255 billion Yuans of liquidity into the system and starts discussing price fixing on money market rates. That's very "Bernank" of them. Lovely. It's also good enough to move China off the world’s worst stock performer list year-to-date with a big +2.2% move in the Shanghai Composite (-3% year-to-date).
The #StrongPound (up +0.4% versus the US Dollar to $1.65 this morning) continues to perpetuate a purchasing power recovery in the UK. UK unemployment? It just dropped to 7.1% from 7.4%. And yet all you’ll hear from the anti-austerity Keynesian crowd in Davos are crickets. Got #GrowthDivergences yet? The FTSE is up +1.4% year-to-date versus the S&P 500 which is down -0.3%.
Small caps just closed at another fresh all-time high of 1175 yesterday as small cap Tech and Healthcare continue to lead the way. This shouldn't come as a real surprise from a sector divergence perspective with #InflationAccelerating. See our GIP quadrant model for details on those style factors; they were in our most recent Global Macro Slide Deck. Ping firstname.lastname@example.org if you'd like more info.
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Top Long Ideas
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.
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.
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
Anyone have a count or word cloud of how many times da Bernank mentioned "the dollar" in a policy speech? I'll bet <10 during entire term @HedgeyeUSA
QUOTE OF THE DAY
"Change your thoughts and you change your world." -Norman Vincent Peale
STAT OF THE DAY
A record 20% of American households, one in five, were on food stamps in 2013, according to data from the U.S. Department of Agriculture (USDA). The USDA says that there were 23,052,388 households on food stamps in the average month of fiscal 2013.