CLIENT TALKING POINTS
VIX
Never mind those “green arrows” in the futures this morning. Buying them in any of the last 3-4 days was a costly mistake. Instead, focus on the VIX TREND which is 14.91 and S&P 500 TREND which is 1779. Both remain very credible and sizable threats to the Old Wall Street consensus that’s still way too long.
COMMODITIES
Our #InflationAccelerating call here at Hedgeye (Macro Theme #1 for Q1) is performing well. The CRB Index was up another +0.8% yesterday in a very red tape to up +1.8% year-to-date. Look, very few people came into the year long commodities. Guess what? That’s why they’re working right now.
UST 10YR
The 10-year yield failed rather hard at our Hedgeye TREND resistance of 2.80% yesterday (2.69% this morning), and this sucks for the Financials (XLF) as the yield spread gets smushed. The XLF joined the Consumer stocks as bearish TREND in our model yesterday
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 48% | US EQUITIES | 6% | |
| INTL EQUITIES | 10% | COMMODITIES | 10% | |
| FIXED INCOME | 6% | INTL CURRENCIES | 20% |
THREE FOR THE ROAD
TWEET OF THE DAY
COMMODITIES: best bullish call of 2014 to-date is being long. CRB Index (19 Commodities) = +0.8% in a very red tape yesterday to +1.8% YTD vs $SPY -4% @KeithMcCullough
QUOTE OF THE DAY
The higher a monkey climbs, the more you see of its behind. -Joseph Stilwell
STAT OF THE DAY
19%: Facebook's growth might be slowing somewhat, but it keeps finding new ways to make money off of its users. The social network reported sales and profits that beat Wall Street's expectations, sending the social network's stock soaring. FB shares are up over 19% in premarket trading Thursday.
