Burning Currencies

Client Talking Points

US DOLLAR

The Dollar was down another -0.7% last week and is trying hard to bounce this morning as the Japanese take their turn trying to torch the Yen. The Hedgeye TAIL risk is back on now from a Down Dollar, Up Commodities #InflationAccelerating perspective. Macro matters.

JAPAN

Ahhh... that smell of Burning Yen! The whole -0.46% of it versus the US Dollar got the Nikkei a +3.1% rip back to -8.9% year-to-date. Note the Nikkei VIX (volatility) is tracking around 30 now. I’m sure playing pachinko is fun too, but this FX versus Equity correlation whip wears on people after a while.

NAT GAS

Note to the omnipotent folks at the Federal Reserve: whatever you do, do not say there’s inflation in your world, ever. Take a look at Natural Gas. Boom. It is ripping another +5.2% higher to $5.48. That's up +29.7% year-to-date as the CRB and Gold continue to beat all US major equity indices at +4.7% and +9.6% year-to-date.

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

COMMODITIES: CRB Index and Gold +4.7% and +9.9% YTD vs Dow -2.5% #InflationAccelerating @KeithMcCullough

QUOTE OF THE DAY

Inflation is the one form of taxation that can be imposed without legislation.

-Milton Friedman

STAT OF THE DAY

Soros Fund Management has doubled up a bet that the S&P 500 is headed for a fall. Within Friday’s 13F filings news was the revelation that the firm increased a put position on the S&P 500 ETF by 154% in Q4, compared with Q3. The value of that holding, the biggest position in the fund, has risen to $1.3 billion from around $470 million. It now makes up a 11.13% chunk of all reported holdings.


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