Beware of Yellen

Client Talking Points

US DOLLAR

Time for Janet Yellen to abandon the Fed’s Constitutional dual mandate and just target rates? The Dollar definitely thinks so. It's down again this week after losing -0.8% of its value last week. Meanwhile, commodity #InflationAcclerating continues to front-run the probability of a Yellen devaluation. Sure, it might be good for a low-volume pop in stocks, but it's horrible news for US consumption growth.

GOLD

Here's a simple formula: Dollar Down + Rates Down = heaven for Gold. That’s why we are bullish on Gold (see our full research note recapping why from yesterday). What was Hedgeye TREND resistance of $1272 for Gold is now support.

UST 10YR

I’ll keep adding to the "Gold-Bond" asset allocation move if Janet Yellen targets rates. You know who else got away with targeting rates? #Japan. 2013’s Hedgeye TREND support for the 10-year US Treasury yield is now resistance at 2.80%. Maybe she wants a 0.6% JGB-style 10-year?

Asset Allocation

CASH 50% US EQUITIES 2%
INTL EQUITIES 4% COMMODITIES 18%
FIXED INCOME 12% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
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

GOLD: up another +0.7% to $1283 = +6.7% YTD as #Yellen threatens to target rates and Burn The Buck @KeithMcCullough

QUOTE OF THE DAY

"The hardest thing to see is what is in front of your eyes." - Johann Wolfgang von Goethe

STAT OF THE DAY

Crude-oil prices moved higher for a sixth day, with futures finding continued support in a weaker dollar as the market waits for Janet Yellen’s first monetary-policy testimony. March crude oil rose 32 cents, or 0.3%, to $100.37 a barrel, setting it on track for a sixth-session climb in a row.


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