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Client Talking Points

VIX

The good news is that the S&P 500 held our Hedgeye TREND support (1779) yesterday. The bad news is that front-month VIX is still solidly above TREND support of 14.91. So I’d sell an up open in US stocks unless volatility calms. Unlike the UK (whose Q4 GDP accelerated sequentially this morning to +2.8% year-over-year, USA’s should slow on Thursday from the Q3 peak).

EUROPE

If you’re long European Equities versus virtually any other region of the world year-to-date, you are less miserable and sleeping a little bit better. Europe is bouncing as Germany's DAX holds our Hedgeye TREND support of 9166. Meanwhile, Portugal was up +1.2%, Denmark +0.8%, and Austria +0.6%. All of them are still up +3-4% year-to-date versus the S&P 500 which is down -3.6% YTD. The rate of change in growth is our #GrowthDivergences theme. 

UST 10YR

It's game time again for the 10-year yield as our TREND level of 2.80% and yield just bounced 6 basis points off of Friday’s lows. Gold didn’t like that, so we’re waiting and watching for the next Gold buy signal. If the 10-year fails at 2.80% again, buying back Gold is at the top of my macro menu. We will let the market decide.

Asset Allocation

CASH 39% US EQUITIES 12%
INTL EQUITIES 15% COMMODITIES 10%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
JPM

JPMorgan shares are currently trading with the most implied upside to fair value in our fair value model for money-center, super-regional and regional bank stocks. By our estimates, JPM shares have upside of 33% based on our regression of EVA (economic value added) – which looks at the spread between return on capital and cost of capital – and the current multiple to tangible book value. Over time, we have found that sizeable discounts and premiums mean revert toward fair value giving JPMorgan an embedded tailwind in 2014.

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.

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.

Three for the Road

TWEET OF THE DAY

No one but baby boomers play slots! that's the long-term problem for regional gamers and slot companies $IGT. also a near term problem @HedgeyeSnakeye

QUOTE OF THE DAY

"Oh yes, the past can hurt. But you can either run from it, or learn from it." - Rafiki, from The Lion King

STAT OF THE DAY

The U.S. retail price for regular gasoline fell to $3.279 a gallon yesterday, according to AAA, the nation’s largest motoring company. The countrywide average rose to within a cent and a half of $4 in April 2011.