Burn, Baby Burn!

Client Talking Points

US DOLLAR

The buck continues to burn. It's down -1.5% in the last 2 weeks after failing our Hedgeye TAIL risk resistance of 81.17 US Dollar Index. Don’t confuse the inflation embedded in that (CRB Index new highs this morning at +4.6% year-to-date) as growth. It's great for Utilities (XLU), but brutal for Consumers (XLY and XLP).

GOLD

Ohh baby does Gold love US #GrowthSlowing. Dollar Down + Rates Down = Gold up +8.8% year-to-date! That was 2011 and that’s Q1 of 2014. Beta chasers are going to get smoked not learning the Q1 2011 lesson. Variance at both the US stock and sector and level is starting to rip.

#EuroBulls

What's that? $1.37 Euro and $1.67 Pound versus the US Dollar? Unlike US economic growth slowing on the margin, European growth actually continues to accelerate. People who claim a strong currency is “bad for Germany” certainly don’t have any economic (and/or European growth equity return) data to support that.

Asset Allocation

CASH 49% US EQUITIES 0%
INTL EQUITIES 6% COMMODITIES 15%
FIXED INCOME 15% INTL CURRENCIES 15%

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

The government has been very successful in convincing lemmings that there's no inflation @KeithMcCullough

QUOTE OF THE DAY

There is giant untapped potential in disagreement, especially if the disagreement is between two or more thoughtful people. -Ray Dalio

STAT OF THE DAY

Gold futures pushed higher in electronic trading Friday, trading at the highest levels since November. Gold for April delivery jumped $16.70, or 1.3%, to $1,316.70 an ounce, adding to a $5.10 gain Thursday on the Comex division of the New York Mercantile Exchange.