CLIENT TALKING POINTS
COMMODITIES
The CRB Index (19 commodities) was up another +1% yesterday to +2.5% year-to-date versus the S&P 500 which is down -5% YTD and Consumer Discretionary (XLY) -7.5% YTD. Incidentally, this northeast weather isn’t going to slow this trend either. We will be hosting a call on why this morning at 11AM EST. Ping sales@hedgeye.com for access.
GOLD
Gold registered another buy-signal on red yesterday in #RealTimeAlerts. That's the 6th buy signal in my model since November when commodities bottomed. What Gold needs to really breakout is already in motion, a 10-year bond yield confirming a bullish to bearish TREND reversal.
YEN
The Yen is also signaling a potential bearish to bullish reversal on my intermediate-term TREND duration (breadown line for US Dollar versus Yen is $102.23). How many people are positioned for that? Seriously? The Japanese retail dudes who were short Yen, long Mothers #nope.
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 | 54% | US EQUITIES | 4% | |
| INTL EQUITIES | 4% | COMMODITIES | 14% | |
| FIXED INCOME | 8% | INTL CURRENCIES | 16% |
THREE FOR THE ROAD
TWEET OF THE DAY
JAPAN: is that all they got? +1.2% Nikkei to -13% YTD as the government buys ETFs? @KeithMcCullough
QUOTE OF THE DAY
"Most of the shadows of this life are caused by our standing in our own sunshine." - Ralph Waldo Emerson
STAT OF THE DAY
At its peak in January, the S&P 500 had rallied 173 percent from its 2009 bottom, a bull market that was almost a year older than the average since World War II. (Bloomberg)
